MF Global Bankruptcy: Updated Commentary and Analysis

“Regulators hunting for about $600 million in customer money that went missing shortly before MF Global Holdings Ltd. collapsed said they are being stymied by the poor condition of the securities firm’s records.

‘Their books are a disaster,’ Scott O’Malia, a commissioner at the Commodity Futures Trading Commission, one of the regulators leading a hunt that has stretched 10 days so far, said in an interview. ‘We’re trying to figure out what numbers are the real numbers.’ “Inside the Hunt for MF Global Cash,” Wall Street Journal (sub req). 

While investigators continue their search for the nearly $600 million of client funds missing from the books of MF Global, courts and regulators in the US and the UK push ahead with what has become the 8th largest bankruptcy in the US. Here’s an update on those efforts, from law firm Reed Smith and others on JD Supra:

In the US:

MF Global: US Update as of November 9, 2011 – SIPC Trustee Announces Transfer of Additional Commodity Accounts (Reed Smith)

“On November 7, 2011, the SIPC Trustee (the “Trustee”) announced that MF Global Inc. (“MFGI”) commodity customer accounts that had not yet been transferred by the Trustee can now be transferred provided that the account holder finds a Futures Commission Merchant (an “FCM”) willing to accept a transfer of the positions in the account without collateral. All account transfers must be completed by 5:00 p.m. EST Friday, November 11, 2011, at which time the process of an orderly liquidation of non-transferred accounts will begin. In order to protect their transferred positions, the Trustee advised MFGI customers to consider posting collateral if requested by the transferee FCM. Alternatively, MFGI customers can request that their accounts be liquidated.” Read more»

MF Global – U.S. Update as of November 7, 2011 (Reed Smith)

“On November 4, 2011, the SIPC Trustee took his first steps toward transferring frozen customer securities accounts held by MF Global Inc. (‘MFGI’) when he announced that he will be accepting proposals for the transfer of all customer securities accounts of MFGI to another member of the Securities Investor Protection Corporation. This action is in addition to the steps the Trustee took last week to transfer certain segregated commodities accounts from MFGI to other futures commission merchants.” Read more»

SIPC Trustee Appointed for MF Global, Inc. (Reed Smith)

“On October 31, 2011, the Securities Investor Protection Corporation filed an application with the United States District Court for the Southern District of New York seeking a declaration that the customers of MF Global Inc. (‘MFGI’) ‘are in need of the protections available under the Securities Investor Protection Act of 1970.’ … James W. Giddens, who performed a similar role for Lehman Brothers Inc., was appointed trustee for the liquidation. The Trustee will oversee the liquidation of MFGI, with a primary goal of fulfilling the SIPA mandate to satisfy public customer claims, including those related to commodities and securities, in an orderly process.” Read more»

MF Global U.S. Bankruptcy First Day Hearing Leaves Questions Unanswered (Reed Smith)

“The first day hearings in the Chapter 11 cases of MF Global Holdings Ltd and MF Global Finance USA Inc (together the ‘Debtors’) were held on 1 November 2011 before Judge Martin Glenn in the U.S. Bankruptcy Court for the Southern District of New York.

  • Question of whether money was swept from the UK entities to the U.S. entities prior to the insolvency proceedings remains unclear
  • Debtors allowed to continue to make inter-company payments within the U.S.
  • Debtors allowed to use US$5 million of cash collateral held with JP Morgan for ordinary course business expenses within the U.S.”

Read more»

In the UK:

MF Global – UK Update (Reed Smith)

“The UK special administrators have provided some information for clients with positions with MF Global UK Limited:

  • All open client positions relating to foreign exchange (FX) have been or are being closed as of 4 November 2011
  • The special administrators are working on providing closing information
  • Creditors will receive formal correspondence from the special administrators in the next seven days detailing the process for making a claim”

Read more»

MF Global Enters Insolvency Proceedings on Both Sides of the Pond (Reed Smith)

“The UK subsidiary, MF Global UK Limited, was placed into a new special administration regime for investment banks, the first company to enter this regime. Under the special administration regime the special administrators’ objectives are to ensure the return of client assets as soon as is practicable, to engage with exchanges, clearing houses and other authorities, and the winding up of the company for the benefit of creditors… The position of MF Global UK Limited clients and MF Global, Inc. clients who have placed funds and other assets with either entity will depend on the basis on which those assets are held, including whether the funds are held as client money under the UK Financial Services Authority rules or customer property under the SIPA rules, as applicable.” Read more»

Related Commentary and Analysis:

MF Global Bankruptcy and its Impact on Traders (Tampa Bay Bankruptcy Center, P.A.)

“MF Global was a brokerage that acted as a counter party to investors who wanted to buy or sell commodities, including crops like corn and soybeans. In a recent letter the CME Group, owner of the Chicago Board of Trade admitted that MF Global’s bankruptcy created ‘a difficult period for many of our customers.’ However, CME assured everyone that commodity trading investors will still be able to access their accounts despite the bankruptcy. Nevertheless, the trustee has frozen the customer funds of the firm and as a result, some commodity traders and also farmers have not been able to access their money since the bankruptcy.” Read more»

Implications of MF Global Inc. SIPC Proceeding for Counterparties and Market Participants (Morgan Lewis)

“On October 31, the Securities Investor Protection Corporation filed for a protective order under the Securities Investor Protection Act for MF Global Inc., a company registered jointly as an Securities and Exchange Commission registered broker and Commodity Futures Trading Commission registered futures commission merchant… [T]he insolvency of MF Global Inc. will have substantial consequences for commodities customers, investment advisers, counterparties in trades involving to-be-announced securities, mutual funds, and introducing brokers…” Read more»

MF Global Creditors take action in wake of Bankruptcy (Tampa Bay Bankruptcy Center, P.A.)

“Since the bankruptcy filing of MF Global on October 30, the brokerage firm’s creditors have started to take action to recover their losses. These include suing the company’s advisers, searching for assets overseas and seeking information from a probe into the mingling of customer accounts. MF Global’s liabilities amount to $39.7 billion and its assets are valued at $41 billion. The firm has said it has about $26 million in cash. But about $593 million of MF customer funds cannot be unaccounted for.” Read more»

MF Global CEO Resigns after Bankruptcy (Tampa Bay Bankruptcy Center, P.A.)

“Jon Corzine, the Chairman and CEO of MF Global has submitted his resignation, barely 20 months after being appointed to head the futures brokerage firm… Corzine said in a statement, ‘I have voluntarily offered my resignation to the Board of Directors of MF Global. This was a difficult decision, but one that I believe is best for the firm and its stakeholders.’ On his resignation, Corzine added, ‘I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,’ and confirmed his commitment to cooperating with regulatory investigations and the ‘disposition of the firm’s assets.’” Read more»

MF Global Files Bankruptcy (Tampa Bay Bankruptcy Center, P.A.)

“MF Global has filed for bankruptcy leaving many other Wall Street firms feeling the effects. Other companies with links to MF Global saw the value of their stocks plunge as investors’ confidence took a severe bashing. Even companies that took damage control steps experienced a slide. The Jeffrey’s Group issued a statement saying they had minimal exposure to MF Global. Their stocks fell by almost 10%. The Fortress Investment Group declared that it had “almost zero” exposure to MF Global saw their stocks fall by more than 11%.” Read more»

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See alsoLegal Implications of MF Global Bankruptcy

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