Timing Questions Emerge on MF Global Cash
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By AARON LUCCHETTI And SCOTT PATTERSON Hundreds of millions of dollars might have gone missing from customer accounts at MF Global Holdings Ltd. as far back as four days before the securities firm filed for bankruptcy protection, people familiar with the situation said Monday.
The possibility of a shortfall in customer funds on Oct. 27 suggests problems might have emerged sooner than MF Global officials initially indicated to regulators and exchange operator CME Group Inc.
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As the firm was fighting to survive a customer exodus during the week before its Oct. 31 bankruptcy filing, MF Global officials didn't indicate there were any deficits in customer accounts, according to people familiar with the matter. On Oct. 28, MF Global officials reported to CME Group that the customer funds at the firm were in good shape, according to people familiar with the matter.
Just hours before the bankruptcy filing, though, MF Global executives told regulators they believed a shortfall had somehow occurred, possibly starting on Oct. 27 or Oct. 28, these people said. Customer funds were found to be short by about $200 million on Oct. 27, according to people familiar with the matter.
Details of the disclosure haven't been previously reported. As regulators investigate the company's collapse and search for the missing money, estimated at about $600 million, the timing of the shortfall could be crucial.
If regulators had known sooner about the missing money, they might have intervened faster or differently. Instead, they were left with a bigger mess after MF Global tumbled into bankruptcy.
The CFTC also is examining whether hundreds of millions of dollars in customer accounts were transferred at MF Global during the week that began Oct. 24. The transfers weren't recorded in the firm's general ledger reviewed by exchange officials, according to the agency.
"We're still trying to assess how far this goes back," Thomas Smith, a Commodity Futures Trading Commission official involved in the MF Global probe, said in a staff briefing with the Senate's agriculture and banking committees Monday.
A spokesman for MF Global said last week that the firm is cooperating with regulators and the bankruptcy trustee trying to find the missing money.
Mr. Smith said a failure to record the transactions in the general ledger is one reason regulators have had trouble finding the missing funds. The CFTC is attempting to trace the movement of the funds, including wire transfers of funds to several banks. The CFTC believes the money could still be inside MF Global, though it thinks that is a remote possibility, according to people familiar with the agency's thinking.
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Associated Press Funds in customer accounts may have gone missing earlier than reported by MF Global, led by then-CEO Jon Corzine.
The CFTC said it discovered the activity in its review of MF Global's records since the bankruptcy filing. Typically, such moves are reflected in the general ledger. People familiar with the company's thinking say the general ledger reflected customer transfers in the early part of the week.
It still isn't clear why the customer-account shortfall occurred. During its final days, MF Global was dealing with a torrent of requests from customers trying to get their money back. That put pressure on the firm to sell assets quickly, and the firm wasn't able to make trades quickly enough for cash to arrive.
MF Global officials have complained that banks the firm worked with prevented MF Global from having full access to the status of firm accounts and customers' accounts in the days leading up to the bankruptcy. At the same time, downgrades from credit-rating firms compounded MF Global's need for cash. Officials at the firm have said they notified regulators as soon as they knew about a shortfall in customer accounts.
Meanwhile, customers' trading margin that remains frozen within MF Global cannot be pulled out and will soon be liquidated, according to the trustee overseeing the process.
Exchanges led by CME Group already arranged for the transfer of about $1.5 billion of the estimated $5.6 billion in customer funds held in the U.S. by MF Global, representing about 60% of the collateral posted against outstanding trades.
The remainder of the $2.5 billion lodged against trades at CME markets cannot be transferred, according to a statement from trustee James Giddens, who directed clearinghouse operators to liquidate the remainder in an orderly fashion but not necessarily immediately.
The decision is another blow to clients who traded through MF Global and have been stuck without the cash and collateral used to do business on U.S. exchanges. A spokesman for the trustee has said that clients who held cash on deposit with the firm—who have had none of the funds freed up so far—are likely to have to file claims for the money in the bankruptcy process.
Also Monday, one newly formed coalition of customers pushed back against J.P. Morgan Chase & Co., charging that the bank was trying to unfairly claim their assets in the court tussle over MF Global's remains.
A spokeswoman for the bank declined to comment Monday. |
