Is now the time to put screws to JP Morgan?

June 5, 2012 03:04 PM

James Koutoulas made an interesting claim in a conversation with CNBC last week. He indicated that he has inside information from sources within JP Morgan that the bank is holding up to $600 million in former MF Global customer money. Basically what is nearly left of the shortfall once you take out part 30.7 money identified but currently stuck in the United Kingdom.

The MF Global Inc. trustee has been working on getting this money returned, and in fact JP Morgan discovered and returned $168 million in mid-May, which according to MFGI trustee spokesman Kent Jarrell was unrelated.

Boy, wouldn’t you love to find $168 million caught in the seat cushions of your couch while looking for the remote!

Given that we are now more than seven months into the process, it seems that the time for cooperation is over and the trustee needs to play a little hardball.

And given its current weakened position it might be a good time to play hardball with JP Morgan. All MFGI Trustee James Giddens really needs to do is follow JPM’s playbook. Seems they are awfully adept and kicking someone when they are down. JPM managed to get a great deal on Bear Stearns, they held onto Lehman customer money — and only had to pay a measly $20 million fine several years later — and they apparently have done the same thing with MF Global. The MFGI trustee indicated in a lengthy report filed earlier this week, that he could  take action.  “JPM has cooperated with the Trustee’s investigation, and the Trustee has announced publicly that he is engaged in active discussions with JPM with respect to these matters. In the event these discussions do not result in an agreement, the Trustee, if appropriate, will commence litigation,” the report summary stated.

Seems like awfully polite discourse seven months after the fact, particularly when no adequate explanation was offered for the delay in returning the $168 million, which the trustee described as “excess collateral that JPM held at the commencement of MF Global Inc.’s liquidation.”

JP Morgan has a tendency of pressing their advantage with troubled firms and now might be a good time for the MFGI trustee to turn the tables on JPM.

The trustee for MF Global Holdings released his own report on June 4. In it he reiterates findings he made in a Feb. 16 report that indicated his investigation showed that none of the funds in a JP Morgan cash collateral account were those of MF Global customers. Makes you wonder what trustee Giddens is discussing with JP Morgan and who is supplying information to Koutoulas.

The Freeh report takes issue with much of Giddens work and portrays Holdings as a victim at the mercy of MFGI as if they weren’t basically one and the same up until the bankruptcy (more on this tomorrow).

It seems the banks have run roughshod over everyone since they were bailed out. It is time someone held them accountable.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.