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CFTC on MF Global’s missing funds: we don't really know where all the money went

Thursday, December 15, 2011
Opalesque Industry Update – As the heads of MF Global testified on Capital Hill yesterday for the third time, speculations still abound as to what happened to the missing customer funds and who knows what about their whereabouts. And apparently, the CFTC - which may have had a role in MF Global's eventual collapse - is not too clear about that either.

Jon Corzine testified during the first of three subpoenas from congressional committees investigating on Capitol Hill on December 8th, following the collapse of commodities brokerage MF Global and the missing $1.2bn in client funds. “I simply do not know where the money is or why the accounts have not been reconciled today,” he said then.

On Tuesday December 12th, Corzine, who was chairman and CEO of MF Global from March 2010 until his resignation last month, testified for the second time before senators on the Senate Agriculture Committee and said he had never authorized the misuse of customer funds, according to a MarketWatch report. However, Terrence Duffy, the CME Group's Executive Chairman who testified after Corzine, said CME had been informed over the week-end that Corzine may have known about a loan (of around $175m) made using customer funds to one of the firm’s European affiliates. Apparently, an MF Global employee told a CME auditor that “Mr. Corzine was aware” of the loan.

MF Global traded on exchanges managed by CME Group.

On Wednesday, Jill Sommers, who is heading the U.S. Commodity Futures Trading Commission (CFTC)'s review of MF Global, told Reuters that regulators "are far enough along the trail" that they know where the money went. The CFTC and the trustee liquidating the firm are under intense pressure from lawmakers and customers to provide answers about what happened to the missing fund, the report added.

Opalesque heard from an informal source that customers are also being made to jump many hoops to recover only part of their own money.

But in response to the general belief that the CFTC knew where the missing customer funds were, Commissioner Bart Chilton said on CFTC’s website: “While I will not discuss the specifics of the investigation, based upon the most up-to-date information available, I do not have confidence that we know where all the money went,” he said.

CFTC’ staff has information into many aspects of this investigation, including transfers of some customer funds. However, accounting of all customer funds remains a work in progress.

“We all want a resolution to the ultimate destination of customer money, and we want it returned as soon as possible to the rightful owners,” he added. “At the same time, the investigation and any potential litigation should only come about after an exhaustive and particularly thorough accounting of the whereabouts and circumstances related to the transfer of customer funds."

Early this year, the Federal Reserve allowed MF Global to join an elite group of 22 dealers that help the government sell Treasury securities, said AP. The role of primary dealer conferred on MF Global a seal of financial strength. It gave the firm a competitive edge and likely lowered the interest it was charged to borrow, noted Janet Tavakoli, an expert on the markets that MF Global occupied.

Corzine, Bradley Abelow, MF’s president and COO, and Dan Berkovitz, CFTC’s general counsel, testified at a hearing yesterday (December 15th) of the House Financial Services subcommittee on oversight and investigations. The panel was the third congressional committee to vote to subpoena Corzine, reported Bloomberg, which also said that the CFTC’s internal watchdog would review the agency’s oversight of MF Global Holdings Ltd’s brokerage after the issue of the missing client funds is resolved.

Corzine rebuffed CME's earlier assertion. It could be hard to build a persuasive case that he did know, experts told Washington Post.

“If you did anything wrong, the criminal investigators will find that; I won’t,” said Massachusetts Rep. Michael Capuano, the top Democrat on the panel Corzine faced.
B. Gravrand


See our recent commentaries of the MF Global saga:
13.12.2011 Opalesque Exclusive: Corzine's many inconsistencies should be questioned Source
08.12.2011 Opalesque Exclusive: Jon Corzine's toppling of government regulators should be considered Source

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Commissioner Jill Sommers responds to concerned customers of MF Global: http://www.cftc.gov/PressRoom/PressReleases/pr6159-11 Benedicte Gravrand |   December 16, 2011 06:22:45 PM
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