MF Global Post-Mortem Is Underway
The MF Global post-mortem is underway, and looks like it will take at least several more weeks to complete. As of press time, regulators have still not found the missing $600 million dollars.
Federal prosecutors in Chicago and New York have now issued subpoenas to gather company records in the probe of the firm's collapse, a sign of an intensifying Justice Department criminal investigation, the Wall Street Journal reports (subscription required).
While hundreds of the firm's customers are rightly up in arms about their frozen accounts and have little they can do right now, the big accounting firms have rarely been as busy.
James Giddens, the trustee who is charged with returning customers' funds, has hired the accounting firm Deloitte to create a claims process for customers, as well as Ernst & Young, to look through the firm's books, which by all accounts, have so far proved to be a complete mess.
According to the New York Times, Giddens has gathered a team of no less than 200 people (200!) to unwind MF Global, in addition to the 200 or so MF Global employees who have been kept on to help with the massive job.
The team now faces the uphill struggle of trying to understand exactly how the firm operated, by carrying out dozens of interviews with staff members and reviewing of thousands of transactions.
The Times reports that the accounting team's task has, unsurprisingly, been grueling.
From the NY Times:
"One lawyer for the trustee returned from his honeymoon and worked a 21-hour day. Another lawyer held a conference call from the emergency room of a hospital where a close relative was undergoing an operation. A group dispatched to Chicago had no time to pack, buying clothes when they arrived.
So far, the trustee has transferred the holdings of about 15,000 MF Global customers to new brokers, along with some of the collateral backing their trades. On Tuesday, Mr. Giddens said he was seeking approval to return 60 percent of the money sitting in separate cash accounts, a move the Commodity Futures Trading Commission supports. A New York bankruptcy court judge is to hear the request Thursday morning."
Still, countless customers are still in the dark about their money. There are calls for the Commodity Futures Trading Commission to adopt new transparency measures and keep a closer eye on futures firms. The CFTC is the primary regulator for MF Global's futures-trading operation, but the firm also is overseen by the SEC and FINRA.
At the bankruptcy hearing on Wednesday, the Times reports that "Judge Martin Glenn asked a lawyer for the trustee if he knew whether customer money had been mingled with company cash" -- a major violation of Wall Street rules and a potential explanation for mission millions.
The trustee's lawyer, James Kobak of Hughes Hubbard & Reed, reportedly replied: "I don't think anybody knows the answer."
In the meantime, our readers have been commenting on the evolving scandal following my last blog on MF Global, Hall Of Shame: MF Global's Books Are A Complete "Disaster".
"Interesting to think about Corzine's comments during the firm's latest financial quarterly webcast. He constantly referred to how he is creating "the way forward" for the firm. Apparently "the way forward' needed $600 million of customers' money," one reader wrote. Prevention is better than cure, another reader points out. "If they already knew that it was in shambles then they should have rectified the matter early on. If they did they wouldn't be having the situation they are having right now.
As the MF Global scandal continues to unravel, it should all provide good fodder for the Occupy Wall Street protesters, who after the closing of Zuccotti Park earlier this week have today started gathering again in Lower Manhattan to start demonstrations marking the movement's second month anniversary. They are currently facing an army of police in riot gear and on horseback.
Let's hope regulators and politicians show the same kind of determination (minus the riot gear and horses) in trying to prevent another MF Global scandal from happening in the future.
After all, it is the fourth Federal Reserve primary trader to fail in the past four years, and is just the latest in a long list of firms that have collapsed without any trace of their customers' money.
Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio