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

MF Global: Where’s the money?

Perhaps more controversial than disputes over certain funds is the difference as it pertains to officers of MF Global, many of whom are still employed by the firm under Freeh’s direction. In his August report Giddens states, “There are colorable claims, including claims for breach of fiduciary duty and negligence, against former MF Global CEO Jon Corzine, former MF Global CFO Henri Steenkamp and former MF Global Assistant Treasurer Edith O’Brien, among others.”

Giddens has agreed to cooperate with class action lawsuits filed against these officers and will provide the claims structure to distribute any awards from those suits. Steenkamp still is listed as chief financial officer and has signed off on Holdings financial statements. 

So to answer our original questions, the “who” is MF Global officers and, while intent is hard to prove, it is difficult to deny negligence on the part of all senior officials. The amount taken was $900 million, with another $700 million stuck in the UK; most was transferred to creditors like JPMorgan to cover margin on overleveraged trades; 80% of 4d money has been returned with a likelihood those accounts will be made whole; secured funds will depend on the U.K. litigation in 2013.  

Roe reports that the distressed debt market on non-secured claims is bidding 30¢, which indicates some introducing brokers and other non-secured creditors of the brokerage will get some money back. 

Giddens has received approval for fees of primary counsel through February 2012 totaling approximately $17 million. Another $1.9 million in outside counsel fees have been approved. 

Freeh has submitted fees of approximately $35 million for services through July 2012. 

Giddens notes that no fees or expenses associated with the liquidation proceeding are being paid for out of customer funds.

Futures trader and MF Global victim Lowell says he is more careful now and keeps just enough money to cover the small trades he makes.  “The trustee has done a good job working for us,” Lowell says, “But it was truly the work of James Koutoulas with the CCC that really kept us in the spotlight.  He and the rest of the team have done wonders for commodity traders as far as keeping the pressure on and helping us get back the 80% so far.”

So as we approach the one-year mark chances for customer being made whole, at least 4d customers, look good. But the process has been a long, difficult one. 

In the world of futures trading when customers can face margin calls twice a day, waiting for more than a year to get your money — money you were assured was safely segregated by your introducing broker, clearing broker, futures exchange, industry regulator, industry trade groups and Futures magazine — is wrong and requires more than new rules. It requires someone to pay.

The MF Global debacle has many interesting angles and has taken on a variety of conspiracy theories, though none really are necessary. At the end of the day, what we are talking about is theft, as National Futures Association President and CEO Dan Roth simply put it.

That leaves us with “who did it, how much was taken, where did it go, will it be returned and when?” And considering we are a full year into this, how much is the bankruptcy process with two separate and competing trustees costing, and who will pay?

When MF Global failed to sell its brokerage unit, it was thrust into bankruptcy on All Hallows Eve, Oct. 31, 2011. No surprise because we learned in the week preceding that the firm was under great monetary stress and those more intimately in the know had been pulling money out in the preceding months

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