An interesting discourse went on at last week’s Senate Agriculture Committee hearings on recent failures to protect customer funds in the futures industry between the two MF Global trustees. The hearings were titled, “Examining the Futures Markets: Responding to the Failures of MF Global and Peregrine Financial Group,” and there really wasn’t a discourse as MF Global Holdings Trustee Louis Freeh was not there, though he supplied the committee with a written statement.
In it he stated, “It is my belief … all of the customers of MF Global Inc. eventually will be made whole by the SIPA Trustee.”
The funny thing is that the SIPC trustee charged with making customers whole, James Giddens, disagrees. Perhaps funny is a poor choice of words as Giddens believes they may fall 10% short and Freeh has actively challenged the MF Global Inc. trustee’s efforts to distribute money to customers and has $2.3 billion in claims against MF Global Inc. while building up a pretty hefty legal bill that someone will have to pay.
The odd thing is why Freeh would choose to comment on the customer aspect of this. It is not his role in this. Perhaps it is because to actively pursue assets for the parent and its creditors who may be holding on to customer money nine months after the debacle sounds a little harsh. In a sense he is representing the firm responsible for the shortfall as well as creditors — JP Morgan in particular—that may be holding on to customer funds. Trustee Giddens has reported that he is in discussions with JP Morgan about customer claims and in May, nearly six months after MF Global went under, secured $168 million in “excess collateral” held at JP Morgan. No adequate explanation has been offered why these funds took so long to come over and the trustee stated that it was unrelated to his other claims against JP Morgan.