From the March 01, 2012 issue of Futures Magazine • Subscribe!

MF Global shortfall less

NEW MATH

While at times the MF Global Inc. liquidation process has seemed slow and plodding, in February the MF Global trustee released reports that shed some light on the situation.

A Feb. 10 release corrected the math by defining the gap between customer claims and assets under the trustee’s control. The gap is $1.6 billion when you add the $700 million under the control of the MF Global UK administrator, which means the shortfall in customer funds (including 4d seg funds and part 30.7 secured funds) — previously stated as $1.2 billion by the trustee — is no greater than $900 million.

The trustee confirmed the total of customer money at MF Global was $6.9 billion; $6 billion in 4d customer segregated funds and $900 million in Part 30.7 secured funds (funds held outside U.S.). The trustee has distributed $3.9 billion and is holding $1.4 billion in reserve.

“We are now taking the UK money and putting it in the gap,” says MF Global trustee spokesman Kent Jarrell.

The bad news is that getting the money out of the United Kingdom will take a long time. “We realized the $700 million in the UK is going to be a long slog, so we simply decided that it was time to [issue] one statement and give a breakdown,” Jarrell says. “We traced most of the cash, so now our job is to go get the money, and we have to get $6.9 billion worth.”

A few days earlier, the 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 to when CME Group put it in a timeline presented to Congress. In November, CME indicated MF Global was in compliance following a review they completed during the week of Oct. 24-28 and stated, “It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection.”

John Roe, co-founder of the Commodity Customer Coalition (CCC), says, “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 from the MFGI estate.” Roe is hoping this release will cause Bankruptcy Judge Martin Glenn to approve a CCC motion mandating that customer priority moves with the funds as they are transferred.

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