Remember this all happened on Oct. 31, 2011, so being made whole at this point is not exactly a fair exchange. Also remember that MF Global’s only business was that of a broker and operated as one entity. And further the fact that there was a shortfall in customer funds should have required the entire company be placed under receivership, a mistake that may have occurred due to brazen lie told in court on Nov. 1. That is an attorney for MF Global claimed that to his knowledge there was no shortfall at the broker dealer. Whether qualifying the statement with “broker dealer” offers some protection is unclear but the FCM and B/D were treated as one entity under MF Global Inc. and was the reason it went to SIPC as a dually registered firm.
John Roe, co-founder of the Commodity Customer Coalition, said, “The CFTC and SEC obviously knew by Nov. 1 that the shortfall in customer property at MF Global was real. They focused on permitting SIPC to move ahead with a liquidation without considering that MFGH’s voluntary application for Chapter 11 would cause the liquidation to become bogged down in litigation. A company with a subsidiary missing hundreds of millions of dollars in other people’s money was not going to reorganize and reemerge from bankruptcy as a new entity. The CFTC and SEC should have fought MFGH’s Chapter 11 application and insisted on and involuntary Chapter 7 liquidation. That would have been best for customers.”
What is clear is the fact that there are two trustees representing competing interests has delayed the return of customer money and vastly increased the cost of the resolution.
Roe added, “Instead, we get two trustees at twice the price delaying the release of hundreds of millions of customer assets, potentially for years. The decision that was made seems to have benefited creditors of MFGH more than customers of MFGI.”