MF Global redux feared as broker said missing $220 million

NEW YORK/CHICAGO, Tue Jul 10, 2012 – Less than nine months after MF Global’s collapse sent shock waves through U.S. futures brokerages, news that more than one-half of customer funds at Iowa-based PFGBest are missing threatens to shatter the fragile confidence in the industry.
PFGBest, a 20-year old broker of foreign exchange and commodity futures, on Monday told customers their accounts had been frozen after an apparent suicide attempt by its chairman. A few hours later, an industry body said about $220 million in customer funds were not in the brokerage’s bank accounts.
While PFGBest is less than one-tenth the size of MF Global, the fallout may be larger. If the National Futures Association’s report on the missing funds proves accurate, questions about the safety of the brokerage model and whether regulators have again been found wanting are inevitable.
“It’s déjà vu all over again,” said John Roe, co-founder of the Commodity Customer Coalition (CCC), set up in the aftermath of MF Global’s collapse last October to help clients recoup their money. In its dying days, MF Global had been accused of dipping into customer funds to help meet margin calls.
“Everyone in the industry claimed this couldn’t happen again, but if the money really is missing, then it’s like a repeat of MF Global. Anyone who thought things don’t need to change, well, have to reappraise their position,” Roe added.

Former MF Global CFO under scrutiny over conflicting statements

WASHINGTON,| Fri Jun 8, 2012 – When Henri Steenkamp, MF Global’s chief financial officer, appeared before two congressional panels about the firm’s collapse, he said he was in the dark over how some $1.6 billion in customer funds went missing.

But a report from the bankruptcy trustee filed this week paints a different picture of an executive closely involved as the firm’s liquidity was stretched and it began tapping into customer accounts to help fund operations.

Congressional investigators have flagged the discrepancies and said they plan to examine them further.

“We’re looking closely at all aspects of the MF Global collapse … We’ll be paying close attention to any apparent inconsistency in Mr. Steenkamp’s testimony,” said Republican Representative Randy Neugebauer.

Steenkamp has been a central figure for lawmakers and investigators such as the Justice Department and the Commodity Futures Trading Commission who are probing why the firm imploded and left hundreds of farmers and traders without access to funds they thought were safe at the commodities brokerage.

A lawyer for Steenkamp did not respond to multiple attempts to reach him for comment. In April Steenkamp said his lawyer had offered a “proffer” to investigators, which describes information a witness could offer. The status of that proffer is unclear.

MF Global trustee sees possible claims vs Corzine

NEW YORK, Mon Jun 4, 2012 – The trustee liquidating MF Global Holdings Ltd. issued a blistering report on Monday about how former CEO Jon Corzine ran the broker-dealer and said he saw possible civil claims against top executives for breach of duties to customers.

In a written report to the U.S. Bankruptcy Court in Manhattan, trustee James Giddens said liquidity at the commodities firm had been a concern long before MF Global tumbled into bankruptcy last October.

Yet before and throughout Corzine’s tenure as CEO, “systems and tools that would enable accurate real-time monitoring of liquidity were never implemented,” Giddens concluded.

The trustee said he had been in discussions with customers’ lawyers about legal action against former MF Global managers and others. He said his report drew no conclusions about possible criminal liability.

Giddens had earlier said he was mulling filing claims against certain executives, but did not name them. Monday’s report identifies Corzine, as well as former Chief Financial Officer Henri Steenkamp and former Assistant Treasurer Edith O’Brien, as possible targets for civil claims.

A spokesman for Corzine had no immediate comment. Lawyers for Steenkamp and O’Brien were not immediately available.

The report serves as a status update on Giddens’ efforts to recover money for customers who lost funds when MF Global collapsed. Giddens has estimated that about $1.6 billion disappeared from customer accounts when the company improperly mixed client funds with its own money.

Giddens also said he was prepared to litigate against JPMorgan Chase & Co, one of MF Global’s main banks, if unable to reach a settlement within 60 days. That dispute centers on claims over whether the bank played a role in the disappearance of customer funds.

JPMorgan has already returned about $89 million in customer funds and $518 million in general MF Global assets, Giddens’ report said.

MF Global clients bash fat fees, seek quick wind-down

NEW YORK, Fri May 18, 2012 – The legal team winding down MF Global’s  bankruptcy estate, led by former FBI director Louis Freeh, estimates the fees charged by the team and other professionals have reached nearly $25 million since the bankruptcy was filed in October.

Now a customer group is planning to ask that the case be streamlined so that those professionals – especially Freeh – receive less and customers receive more.

On Friday, a coalition of former MF Global customers plans to argue in U.S. Bankruptcy Court in Manhattan that the Chapter 11 liquidation of the MF parent entity should be converted to a so-called Chapter 7, coalition leader James Koutoulas said on Wednesday.

In Chapter 11 cases, businesses or their court-appointed trustees try to restructure debt or sell assets to recover as much money as possible to pay off creditors, a process that can be drawn out. In Chapter 7, a trustee sells off assets as quickly as possible, with less involvement from professionals like lawyers, but sometimes at the expense of drawing top-shelf value.

Under bankruptcy law, administrative fees are paid ahead of other creditor claims, so Freeh’s mounting bills are siphoning money from creditors, said Koutoulas, a Chicago fund manager who had $55 million tied up in MF Global on behalf of his clients.

Freeh has released estimated fee figures but not yet formally submitted compensation requests.

MF Global failure creates tax crunch for farmers

CHICAGO – With the tax man breathing down his neck, Ohio farmer Tony Rohrs is scrambling to figure out how much money he made last year in an account at MF Global.

Thousands of former clients of the failed brokerage, including farmers, cattle ranchers and investors, have not yet received tax forms that detail their profits and losses, preventing them from preparing accurate returns for the Internal Revenue Service ahead of a rapidly approaching deadline.

“I’m running out of time,” said Rohrs, who faces a March 1 filing deadline like many farmers.

The collapse of MF Global, which had a large group of agricultural clients, has produced one financial frustration after another for former customers who still have not been fully reimbursed for hundreds of millions of dollars that were frozen in their accounts as a result of the firm’s Oct. 31 bankruptcy.

A trustee overseeing the bankruptcy frustrated customers by returning portions of the frozen funds in staggered amounts during the past three months and requiring them to fill out claim forms to get their own money back.

The delayed tax forms add insult to injury for many as the lack of data means some people may have to pay taxes on profits they did not really make while being unable to write off money they may never see again.

MF Global judge to examine insurance for ex-executives

NEW YORK – The U.S. judge overseeing MF Global’s bankruptcy plans a closer review before deciding whether any of an estimated $190 million of insurance coverage for former company executives should instead go to customers.

Opponents of the plan to cover former executives, including at least four customer groups, believe the funds should not go to people they hold responsible for the collapse of the futures brokerage. The $190 million includes at least $120 million covering the period surrounding the company’s demise.

MF Global Holdings Ltd, which was run by former New Jersey governor and U.S. senator Jon Corzine, filed for bankruptcy protection on Oct. 31.

U.S. Bankruptcy Judge Martin Glenn at a Thursday hearing in Manhattan also authorized the hiring of several law and consulting firms to assist Louis Freeh, MF Global’s bankruptcy trustee and a former FBI director, and James Giddens, the bankruptcy trustee for the MF Global Inc broker-dealer unit.

The judge nonetheless expressed “concern about the proliferation of professionals” involved in the parent’s bankruptcy case.

The $190 million would be reserved to pay legal and other costs for onetime executives of the brokerage.

MF Global general estate may not cover customers

NEW YORK ― The trustee liquidating MF Global Holdings Inc’s. collapsed brokerage does not believe the brokerage will have enough money left over after paying back creditors to close any shortfall in customer accounts.

The roughly $290 million in general estate funds — that is, money reserved for creditors that are not MF Global customers — may not be enough to make customers whole, James Kobak, an attorney for trustee James Giddens, said at a customer meeting in New York on Thursday.

Giddens has estimated that about $1.2 billion is missing from customer accounts at the brokerage. Some customers have argued that they should be allowed to make up for that shortfall by recovering money from the non-customer creditor pool.

“We might support that in certain circumstances, but at this point there simply isn’t a substantial amount of general property available to make up for shortfalls,” Kobak said.

MF Global $2.2 billion transfer to customers approved

NEW YORK ―A U.S. bankruptcy court judge on Friday approved a $2.2 billion bulk transfer that would bring the recovery of nearly all U.S. commodities customers of fallen brokerage MF Global to about 72 percent of their accounts.

The judge overruled several objections to the transfer, including some from customers who traded on foreign exchanges, which are not included in the transfers. Lawyers for James Giddens, the trustee unwinding the brokerage, said MF Global owes about $878 million on foreign accounts.

Most of the transfer should be completed in a few days, but portions of it could take as long as four weeks, the lawyers said.

A lawyer for the trustee unwinding MF Global’s brokerage acknowledged at a hearing that there were suspicious transfers from customer accounts leading up to the Oct. 31 collapse of the firm headed by former Chief Executive Officer Jon Corzine.

James Kobak, lead attorney for trustee James Giddens, told the judge that he could not go into details of an ongoing investigation into what caused a major shortfall in MF Global’s customer funds.

But when the judge asked whether the investigation suggested “suspicious or unexplained” transfers from customer accounts leading up to the collapse, Kobak, after a pause, answered in the affirmative.

Hundreds of millions of dollars missing from client accounts was a major topic of a U.S. Agriculture Committee hearing in Washington on Thursday. Corzine, a former Goldman Sachs executive, U.S. senator and New Jersey governor, said he did not know where the missing money was.

Senate panel to probe regulators’ role in MF Global

WASHINGTON ― Senators plan to press regulators on Thursday on whether they were asleep at the switch as now-bankrupt MF Global took on massive risky bets, and why hundreds millions of dollars in customer funds are still missing.

Commodity Futures Trading Commission Chairman Gary Gensler is one of the regulators called to testify before the Senate Agriculture Committee, in the first major congressional hearing about MF Global since it filed for bankruptcy on Oct. 31.

While Gensler will be able to answer some questions about the CFTC’s MF Global probe, many inquiries are expected to be directed toward Jill Sommers, a Republican commissioner, who is overseeing the agency’s investigation after Gensler recused himself in early November.

Mary Schapiro, chairman of the Securities and Exchange Commission, also is expected to testify.

“The public is still in the dark on basic facts,” said Senator Chuck Grassley, a Republican on the committee. “I hope the committee will be able to get some direct answers from Chairman Gensler and Chairman Schapiro,” he said.

MF Global collapsed in late October after the firm was forced to reveal that it had made a $6.3 billion bet on European sovereign debt.

An effort to sell the firm failed, partially due to the revelation that hundreds of millions of dollars in customer money were not where they should have been.

Investigators have been scouring the company’s books, described as messy and unorganized, for the fund shortfall that has been estimated as much as $1.2 billion by the liquidating trustee.

However, regulators have been at odds with the trustee, believing that figure is too high.

Regulators and law enforcement officials are trying to determine what happened to the money and whether MF Global may have improperly mixed customer funds with its own — a major violation of industry rules.

The SEC is also conducting a broad review into how the firm conducted business.

The hearing on Thursday is the first in a series on MF Global, with the firm’s former chief, Jon Corzine, called to testify at Senate and House hearings scheduled for later this month.

Originally this hearing was supposed to examine how each agency is doing in implementing last year’s Dodd-Frank Wall Street overhaul law.

“I have critical questions about Dodd-Frank implementation which is what the hearing is about,” Senator Pat Roberts, the panel’s ranking Republican, told Reuters. “However, given the extraordinary situation with MF Global, I plan to ask Chairman Gensler about his recusal and his oversight leading up to the bankruptcy.”

Gensler said in early November that he was not participating in the investigation of MF Global so he would not become a distraction or risk creating an appearance of a conflict of interest.

Gensler and Jon Corzine, who resigned as MF Global’s chief executive last week, worked at Goldman Sachs Group Inc. at the same time and held prominent positions. They both left the investment bank in the late 1990s.

MF Global had nearly a half dozen regulators, including the CFTC, the SEC, the Chicago Mercantile Exchange, the Chicago Board Options Exchange, and the Financial Industry Regulatory Authority, policing various parts of the firm. However, there was no one clear watchdog responsible for the whole company.

MF Global trustee moves to return $520 million in client cash

NEW YORK ― The trustee overseeing the bankruptcy of MF Global filed on Tuesday for permission to release 60 percent of the near $900 million in client cash that has been frozen at the commodity brokerage for more than two weeks.

In a measure that will provide some relief to traders who have clamored to get access to their funds, James Giddens sought permission to return about $520 million to some 15,000 commodity customers even as the search continues for client money that regulators say MF Global may have misappropriated in its final days.

The motion, which must still be approved by the court, came after intensifying pressure from commodity traders and the leading exchanges, who said that punishing customers who had liquidated their trading positions ahead of MF Global’s Oct. 31 bankruptcy set a worrying precedent.

Open trading positions were transferred to other brokers a week ago, along with about 60 percent of their collateral, but clients with cash only were unable to move their money out.

The distributions, applicable to those who held only cash in their accounts as of October 31, could be made within days, Giddens said.

Giddens had said last week that any transfer of funds would need to wait until customers had filed claims against their frozen cash-only accounts, a process he was seeking to expedite. But some customers had filed a suit seeking to release their funds, and on Friday the CME Group made an unprecedented offer to put up $300 million of its own funds as a guarantee to try speed up the process.

The collapse of MF Global, once the eighth-largest futures commission merchant by funds and one of the most active on U.S. commodity exchanges, has rocked confidence in the broker industry and the marketplace, both because of the possible violation of supposedly sacrosanct client accounts and because of what traders say has been a painfully slow effort to return frozen funds to clients.

Those without access to their capital have been largely unable to put up the collateral required to open new trades, losing time and opportunity in a volatile market.

The extent of the shortfall in segregated customer funds is still not known, the trustee said in the filing. MF Global collapsed in late October after former Chief Executive Jon Corzine’s highly leveraged $6 billion bet on European sovereign debt triggered a crisis of confidence in the broker, triggering margin calls and a run on its funds.

But as the investigation continues more cash may be released.

“The Trustee expects to be able to make one or more additional interim distributions as part of the expedited claims process, with the goal of ensuring equal treatment of all of MFGI’s customers in advance of the final determination of the pro rata share to which they are each entitled,” according to the filing.