MF Global: Wall Street’s Latest Collapse to be Probed by Senate

By Pam Martens: April 21, 2012

MF Global’s Regulators Take the Oath Before Congress; They Have Yet to Explain What Happened to $1.6 Billion of Customer Funds

The U.S. Senate Committee on Banking, Housing and Urban Affairs will hold a hearing on Tuesday, April 24, to seek answers on how a brokerage firm teetering toward bankruptcy misplaced $1.6 billion of customer funds – funds that by law must be held in accounts that are segregated from the firm’s own money. Thus far, since December, Congress has held five hearings with no clarity emerging on precisely where the money is or who is responsible for dipping in to customer funds. 

The firm is MF Global, whose Chairman, CEO and Debt Trader in Chief, was Jon Corzine.  Corzine took the helm at MF Global in March 2010 and blew it up just 19 months later with a spectacularly ill-conceived bet on $8.1 billion of foreign sovereign debt in BIIPS – Belgium, Ireland, Italy, Portugal, and Spain – as well as Greece and France.  Before his stint at this, heretofore, obscure brokerage firm, Corzine traveled in the fast lane reserved for those anointed as a former co-head of Goldman Sachs, as well as former Senator and Governor from New Jersey. 

There have been thousands of headlines referring to the customer money as “missing.”  But Congress, the regulators, the former and current executives, as well as the two trustees administering the MF Global estate know that the money isn’t really missing.  The money was misappropriated. 

Edith O'Brien, former Assistant Treasurer of MF Global, Takes the Fifth Before Congress

A good chunk of these misappropriated funds are sitting in the vaults of the largest Wall Street firms, who hit MF Global with demands for additional collateral or held on to proceeds of trades to cover MF Global loans as the firm went into a death spiral in its final week of October 24, 2011.  Approximately $700 million is owed by the trustee for a foreign subsidiary, MF Global UK Limited, according to the trustee hired by the Securities Investor Protection Corporation (SIPC) to oversee the return of customers’ funds in the U.S. 

Questions that are likely to come up during Tuesday’s hearing are: why the Commodity Futures Trading Commission has asked the Chicago Mercantile Exchange to cease and desist from investigating the collapse of MF Global; why the trustee for the parent holding company has been unable to file a list of the corporation’s assets after five months since the bankruptcy filing; why there are news reports of animosity and the withholding of documents between the trustee for the customers’ accounts and the trustee for the creditors of the holding company; why MF Global’s self regulatory agencies gave waivers to Jon Corzine that released him from taking the necessary licensing exams to run a commodity, futures and securities firm.

The hearing on Tuesday, to run from 10:00 a.m. to 12:00 noon in Room 538 of the Dirksen Senate Office Building, will include testimony from the following: James W. Giddens, Trustee, for the liquidation of MF Global Inc.; Louis J. Freeh, former FBI Director and Trustee of the parent holding company, MF Global Holdings; Jill Sommers, Commissioner of the U.S. Commodity Futures Trading Commission which was MF Global’s primary regulator; Robert Cook, Director, Division of Trading and Markets, U.S. Securities and Exchange Commission; Richard Ketchum, President, Chairman and CEO, Financial Industry Regulatory Authority (FINRA); and Terrence A. Duffy, Executive Chairman, Chicago Mercantile Exchange.


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