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

MF Global: One year and counting

November editor's note from Ginger Szala

Back in 1988, Futures did a special issue profiling those who had impacted the industry. I was lucky enough to interview Henry Jarecki, who was famous for running the Mocatta Group. He also was infamous as a key board member at Comex when the Hunt brothers tried to corner the silver market in 1979-1980. Jarecki went through the events leading up to and through when the decision was made to change the margin and limits and basically break the Hunt brothers. I noted that some people wondered if the board moves had been fair. Jarecki, not one to mince words, said it was an “articulated obligation” of the markets to prevent corners and the exchange had to use any tools it had to do that and survive. “Of course they will,” he said. “Anyone who would imagine they wouldn’t must be naïve.”

Although Jarecki was speaking of Comex, I remembered that comment as I went through our special coverage in this issue on the MF Global failure, a one-year-later retrospective. Although it seems MF Global couldn’t save itself or its customers, it’s apparent that it put the creditors and executives first. That certainly is a perversion of what Jarecki and the Comex board were doing to save the exchange and perhaps their own companies and customers from the excesses of the Hunt brothers, but it somehow applies to what Jon Corzine and his cronies did to save themselves and the creditors. 

I’m the first to pooh-pooh conspiracy theories as I just don’t give government or business credit for being that clever or clandestine to pull off a conspiracy to a large extent. People talk, leaks happen and what you end up with is Watergate.

But I do believe in smart lawyering and clever maneuvering. And in reviewing the events around the MF Global bankruptcy, it appears everyone moved faster than the brokerage entity, which no one seemed to be protecting. The result was seg funds were used where they shouldn’t have been, and futures customers were left without their money, some still waiting for it to be returned even today. 

We’ve been told the bankruptcy confusion really was because of missing money, which of course is true. But it was compounded by some fancy lawyer tricks — putting the parent company into Chapter 11, moving the brokerage arm under SIPC — and the regulators, especially the Commodity Futures Trading Commission (CFTC), being so entrenched in Wall Street that they forgot their duty to those they were supposed to protect or the market they were to oversee. It’s truly a story of greed, hubris and incompetence. And the result is it put the futures industry into a tailspin from which it still hasn’t emerged.

In this issue, we explore the moves that seemed to complicate the bankruptcy process in MF Global’s original sin,” as well as where customer money stands today (Where’s the money?). We also review checkered behavior in Rogue CEOs and absent regulators: Is there a pattern?And because of the issues with both MF Global and PFG, we provide a guide in Spotting broker red flags. Finally folks, there is hope: We review what actions the industry has taken since MF Global to enhance protection of client money and to prevent any more missing seg fund moments in Restoring confidence in a post-MF Global world.We also interviewed Dan Roth, president and CEO of the National Futures Association, which was the self-regulatory organization for PFG. He provides some insights on changes adopted, and he’s also something that CFTC Chairman Gary Gensler never was: Contrite. Roth admits his agency dropped the ball on PFG. 

There have been a lot of changes since that Halloween bankruptcy. We can’t fit it all in our print edition, but check out our website for more in-depth content, including first-person accounts from some impacted by the MF Global fallout and industry vet insights. It’s been a dark year for the futures industry, but hopefully customers will get their money back soon, and yes, people will go to jail. As Roth noted, justice in white collar crime takes longer, but it usually happens, typically just before the statute of limitations runs out. 

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