The MF Global Inc. trustee released a preliminary report that pegs the beginning of the shortfall in segregated customer funds to Wednesday, Oct. 26. The report indicates that segregation was violated a day prior than where CME Group pegged it in a timeline presented by Executive Chairman Terry Duffy in Congressional hearings. On Nov. 2 CME released the following statement. “With respect to the apparent shortfall in customer segregated funds held by MF Global (and which were not on deposit with CME Clearing), it appears that any transfer of such funds occurred following the completion of CME audit procedures respecting such funds and in violation of CFTC Regulations and CME rules. CME completed its on-site review last week. At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011.”
“The Trustee's report shows clear fraudulent conveyance and that should help develop the legal framework for recovering customer funds from counterparties who received those funds to the MFGI estate,” says John Roe co-founder of the Commodity Customer Coalition (CCC). Roe is hoping this release will push the Bankruptcy judge to approve a CCC motion that would dictate that customer priority moves with the funds as they are transferred.
CME received MF Global's segregation report for Wednesday Oct. 26 on Thursday Oct. 27 and was on sight to "tie up" the seg funds report the following day. The CME timeline indicated that MF Global “corrected” its Thursday report, which it received on Friday, to show it was under seg by $200 million instead of over seg by $200 million in the early hours of Monday morning Oct. 31. The trustee’s report indicates that the Wednesday report was the one that was corrected.
Concerning the role of senior MF Global executives, Roe says, "It is also clear that Steenkapf and Corzine should be in handcuffs. Both grossly misrepresented the strength of MF Global's financial position to the ratings agencies. Lying--or to borrow a politicians turn of phrase, not being 'factually accurate'--to the ratings agencies is an attempt to perpetrate a fraud on the entire market. This is securities fraud plain and simple."