MF Global Inc. Trustee James Giddens calls for strict liability for the senior officers and directors of commodity brokers as one of numerous recommendations following the bankruptcy of MF Global in his written testimony for a hearing before the Senate Banking Housing and Urban Affairs Committee.
Giddens noted, “The failure of MF Global Inc. was in part due to a failure to maintain integrated systems for tracking liquidity and the movement of funds, a lack of supervision of key treasury functions, fragmentation of responsibility, and inattention to the details of maintaining the segregation of customer funds at senior levels of the company.”
He added that the imposition of civil fines on the directors and officers may be appropriate.
He also recommended the establishment of a customer protection fund, suitability requirements for customers, complete segregation of funds held overseas and improved international cooperation.
At the opening of the hearing, ranking member Senator Richard Selby (R Ala.) expressed disappointment that Commodity Futures Trading Commission Chairman Gary Gensler was not appearing. Shelby raised questions regarding the nature of Gensler’s recusal from the MF Global affair, which came several days after the bankruptcy filing. Shelby said Gensler’s recusal shielded Gensler from explaining his actions, adding, that Gensler owes the public an explanation.
Shelby followed up on that point in questioning CFTC Commissioner Jill Sommers. Shelby asked Sommers whether Gensler expressed concerns regarding a need to recuse himself from MF Global matters before the bankruptcy, specifically regarding discussion on CFTC Rule 1.25 and she indicated he did not. Rule 1.25 involves the type of products a Futures Commission Merchants can invest customer funds in and MF Global had argued against potential restrictions to what they, as an FCM, could invest customer funds in.
Sommers also stated in response to question by one member that "the Commission was informed that MF Global was going to be placed into a SIPC liquidation. We were not involved in whether that decision should be made."
This seems to be at odds with a joint release put out on the day of the filing. Subsequently the CFTC has argued that the law requires jointly registered broker-dealer/FCMs entering bankruptcy to be placed in SIPC.