MF Global: 1.7 Billion missing

Discussion in 'Wall St. News' started by benwm, Nov 22, 2011.

  1. benwm


    $1.7 Billion Customers' Money Missing From MF Global

    The amounts of customer funds missing from MF Global have multiplied from $633 million to $1.2 billion yesterday– and now $1.7 billion today, according to Vincent (Trace) Schmeltz III , the attorney for the 80 member Commodity Customers Coalition. Schmeltz is a member of the Barnes & Thornburg law firm in Chicago

    This new figure is the result of the inability by the Trustee and the CME (the Chicago Mercantile Exchange) to find more than $3.7 billion in customers funds rather than the $5.4 billion projected just after MF Global filed for bankruptcy on October 31.

    Apparently, on October 31, the CME reported segregated funds totalled $5.4 billion. The next day– on November 1st, the CME suggested that $633 million was lost and unaccounted for. But, by yesterday, November 21, the Trustee reported that he could find only $3.7 billion in assets. Neither Schmeltz nor Koutoulas can understand why the CME declared only $1.2 billion missing yesterday– because if only $3.7 billion has been found of the original $5.4 billion segregated accounts– this suggests that the missing amount of segregated funds now totals $1.7 billion.

    Both Schmeltz and James L. Koutoulas, the 30 year old CEO of Typhon Capital Management, told me at breakfast this morning that they have been told that as early as August MF Global was reported to be using segregated customers accounts to “meet margin calls” and bolster their trading positions.

    However, it is not known if the segregated accounts were actually transferred MF Global’s books– which would be a violation of the CFTC regulations. One possible explanation for the missing funds is that MF Global grew by acquisition and never fully integrated their bookkeeping systems, Schmeltz told me at breakfast.

    There have been many ramifications from the MF Global scandal. For one thing, the market capitalization of the CME shares have declined by several billion dollars. The volume of trading on some regional commodity exchanges has declined significantly.

    That is because many commodity brokers are missing significant funds from the $1.7 billion that can’t be found. Typhon Capital, for example, is missing $55 million.

    The unsecured creditors of MF Global are headed by JP Morgan Chase, which lent the firm over $1 billion, Goldman Sachs, Harris Trust and other banking concerns. Some of the MFG customers who are missing money are furious that Hughes Hubbard, a law firm that has represented JP Morgan in the past, is the legal representative of the Trustee in bankruptcy.

    “This is another example of Wall Street favoring Wall Street over Main Street,” Koutoulas told me this morning.

    Even amidst all this confusion about MF Global’s segregated accounts, distress investors have been paying 85 cents on the dollar for claims against MF Global, 30 cents on the dollar for MF Global’s publicly traded bonds, and 9 cents a share for the firm’s common stock.

    Schmeltz and Koutoulas will be the guests of Bloomberg TV’s Margaret Brennan this morning.
  2. I cant even imagine being a hedge fund and finding out they lost $55 million of my client/investor money. Id be rampaging like a rhino on crystal meth looking for my money.

    Corzine, LIFE PRISON TERM for you buddy boy !!
  3. benwm


    CCC Reacts to Trustee’s Moving Target on Shortfall, Presses for Its Claims Process & Ad Hoc Committee at Hearing Tuesday

    The Trustee for MF Global’s SIPA liquidation proceeding issued a press release yesterday in which he put a figure to the estimated shortfall of customer funds for the first time: $1.2 billion dollars or more. This is nearly twice the shortfall reported to the bankruptcy court by MF Global’s attorneys. CCC attorneys James Koutoulas and co-counsel Vincent “Trace” Schmeltz appeared on CNN’s “The Situation Room” yesterday afternoon and discussed this and other developments in the case.

    Mr. Koutoulas issued the following statement in response to the Trustee’s revelation:

    Now that it’s clear that the shortfall is much greater than MF Global initially reported, it only reinforces the need to pierce the corporate veil and pay customers back from the $41 billion in MF’s estate. The Trustee claimed in his release that he has brought about $3.7 billion under his control. Since there were $5.4 billion in segregated funds, we know the shortfall can’t be greater than $1.7 billion. That’s as far as he can move the goal posts. Since there’s $41 billion in assets in the estate, even a $1.7 billion dollar hole should be easy to fill.

    Co-counsel Vincent “Trace” Schmeltz of Barnes and Thornburg added:

    We are concerned that the Trustee lacks the expertise and may lack the motivation to aggressively pursue the commodities customers’ clear priority interest in assets at the holding company level in this case. We would very much like to see a formal committee of commodity market experts who can support, and have real-time input into, the Trustee’s efforts in this matter.

    The Trustee has adopted several of the CCC’s proposed changes to his claims process, including electronic filing of claims, tying “master” accounts to “sub” accounts so customers have one claims form for all of their accounts and properly defining net equity. However, the Trustee has been dismissive as to the rest of the CCC’s motion, as well as to their desire to create an ad hoc committee of customers to represent MF Global customers to the court. CCC attorneys feel this is critical as assets have moved back and forth between customer accounts and MF Global’s estate. Koutoulas noted:

    <b>The Trustee didn’t know how to read a commodities statement. He didn’t know what “net equity” was and yet he thinks he has the know-how to properly administer a claims process of commodities customers without their ongoing input? That’s a myopic viewpoint which has already tarnished this process.</b>

    Without customer representation to the court, it’s going to be the big banks and hedge funds advising the court as to claims. That is a fox in the hen house scenario that increases the likelihood of the subordination of customer property to creditors claims. People are getting financially ruined here and not just the Wall Street crowd. It affects farmers and ranchers too.
    The CCC will argue its motion for a technology driven claims process Tuesday before the bankruptcy court at 3 PM EST. You can download the CCC motion, as well as the Trustee’s new application for a claims process from the CCC website at in the “Resources” section under “CCC Filings & Legal Docs”.
  4. xiaodre


    It's New York and Chicago. Cmon. Can someone please explain to me why Corzine doesn't have an icepick in his ear right now? Where are the goodfellas when you need them? Same goes for Madoff..
  5. Corzine is just a smart businessman. Very successful. I'm pretty sure that he made over $1B in private gains.
    Who is responsible? NFA , CFTC, SEC people. They did NOTHING to prevent stealing.

    Look at Luxembourg CSSF- SIF and UCITS law. Excellent.
  6. AK100


    The masses are getting very restless about Wall Street, that's obvious.

    The masses view Goldman Sachs as evil.

    Governments like to throw the masses a bone or two now and then.

    Talk about wrong place and wrong time for Corzine. Timing as he well knows is everything in the markets......

    So Corzine, looks like your time is up and as you've always dealt in numbers, here's a new one for you, your DOC number is 654876.......
  7. Corzine won't see any jail time period. Just know he gets to use every penny for indemnity. No distributions will be made without consenting to a general release of all claims against MF Global and its employees.
    The longer this lingers the more money the Trustee bills.

    The Trustee holds the funds hostage until a general release is granted while billing out the trust. People will assert claims and allow Corzine and the Trustee to burn through their cash. In a few years after all the cash is gone you may emerge victorious with an uncollectable judgment.
  8. Chausey


    PocketChange got it exactly right. The scam continues with the trustee. The liberal lawyer pricks got work for themselves now. Feeding off the carcass continues. It's all free market though, so it's ok. Nobody ever demands the SPIC actually police the system.
  9. Kasper


    The court received a motion today by lawyers of Hughes Hubbard and Reed, opposing an official commodity customer and broker committee.

    In a strangely constructed argument, attorneys for the Trustee open with that within “Within hours of his appointment on October 31, 2011, and against a backdrop of shortfalls in segregated funds and records that are far from wholly reliable, the Trustee moved and has already affected the transfer of three million open positions associated with over 14,500 commodity customer accounts.”

    But this is NOT what happened. Customer funds were immediately frozen in violation of segregation of customer funds. Neither customers nor customer brokers were given instruction by the Trustees, other than a single number where positions may be liquidated. The orders given by the Trustee to demonstrated a grievious lack of understanding of the industry in which MFGI operated. What happened is this: the following week (not in a few days) those positions that were not liquidated, were then liquidated under order of the Trustee, and new positions at a new basis were opened. (Often positions were not liquidated because there was limited possibility as all customer and broker order terminals were frozen, even for liquidation only.) Then only percentage of supporting margin and the new positions were received by new brokers. No accounts were moved. To represent that is intentionally misleading to the public. Instead we had a disruptive and costly procedure with no basis in the established workings of futures markets and account management.

    In this motion the attorneys state the Trustee seeks cooperation and assistance from SIPC, the CFTC and CME group. (In other words, butt out customers!) SPIC is neither organized nor qualified to assist in return of segregated funds of futures accounts. Both the CFTC and CME have grossly failed their responsibilities to the industry and customers of the industry.

    The final arguments ends with these points among others:

    That there Is No Legal Basis for the Formation of a Commodity Customer or any Other Official Committee in a SIPA Proceeding. Yes, but SIPA “Act” was not written for commodity accounts. So why is this even a SIPA Proceeding?

    That there has never been a creditors’ committee or a customer committee appointed in a SIPA proceeding in the statute’s forty-year history. Is that the logic of law? Just because…? There has also never been a bankruptcy of an FCM where customer funds wound up in the hands of a Trustee in the entire 150 history of organized futures trading in the US:

    The rest of the argument is based on SIPA, which was not enacted by Congress on behalf of Commodity Customer protection. The motion before the court also states, “The Movants seem to believe that the Trustee’s administration of the fund of commodity customer property requires the appointment of a committee solely to protect the interest of commodity customers.” Yes, indeed, based on the bizarre administration so far. The “Movants” (customers who have made a move to the court) represent over a billion in customer segregated funds that the Trustee is treating as part of the “estate” of MF Global.

    The rest of the motion is self congratulatory praise and banter. The Honorable Judge Glenn has shown himself not to tolerate sloppiness, time wasters and fools. It will be interesting to see how this motion is received by the court.

    It's to the point you can't trust any US based brokers nor banks. be car full the powers are starting to grab what they can.
  10. jsp326


    It's bad enough that your posts are unintelligible. Now you have to throw in racial slurs for good measure? :p
    #10     Nov 22, 2011