Investigation and “Shortfall”
As part of my statutorily-mandated duty, I am investigating the extent of and reasons for any shortfall in customer funds. An investigative team, consisting of counsel experienced in broker-dealer liquidations and expert consultants and forensic accountants from both Deloitte and Ernst & Young, continues in close coordination with the Department of Justice, the CFTC, the SEC, SIPC, and others.
The investigation is ongoing, and I am not yet in a position to make any definitive conclusions. My office does not know at this time, with certainty, the extent of the potential segregation and compliance shortfalls, but I estimate the figure could be $1.2 billion or more. My office’s investigation into shortfalls involves all customer accounts. The full amount of any shortfall will not be known with certainty until the claims process is completed. These are preliminary numbers that may well change, and I will update these numbers as appropriate. I felt obligated to share preliminary numbers and explain their uncertainty with the public to dampen assumptions that some smaller amount of the shortfall was known with certainty and could not be larger. It is my hope that, for the benefit of customers, the number will come down. No matter the exact amount of the shortfall, however, its probable size is significant and will substantially affect my ability to make a 100% distribution to former MF Global Inc. customers.
The investigation will also address broader topics, including the demise of MF Global Inc. and the events and transactions that preceded it. I have requested and have been granted subpoena power to aid in the investigation. The Bankruptcy Court has written an opinion supporting my view of the importance of maintaining the independence of that investigation and denying participation in it by the representatives of the holding company or former management whose conduct is an important subject of the investigation. At the same time, I am coordinating my investigation with those being conducted for law enforcement purposes by the SEC, the CFTC, and US Attorneys. I expect to make an interim report on the investigation to the Court at an appropriate time, and on completion of the investigation, I expect to make the final report public.
Thank you Chairwoman Stabenow, Ranking Member Roberts and other Members of the Committee for the opportunity to testify before you and to submit this testimony for the full record of the hearing. You can be assured that my entire office and I are fully committed to returning customers' property as quickly as possible in a fair and equitable manner that complies with the law.