Serious Issues With Chairman Gensler's Role in MF Global's Demise
By Mark Melin
CFTC Chairman Gary Gensler has thusfar refused independent questioning from those with intimate knowledge of the MF Global affair. Serious questions exist regarding Mr. Gensler's oversight not only as the commodity markets suffered their worst set back in history, but his potential role in assisting in this process.
Did MF Global's Sovereign Debt Positions Vaporize During the Sale?
A serious question that should be asked of Mr. Gensler involves the foreign sovereign debt positions held by MF Global. Did MF Global have the sovereign debt positions on their books during the sale process, or were those positions removed from the books? If removed, why did those positions not get packaged in the original sale of the broker? The buyers were said to be interested. Shouldn't the CFTC Chairman do everything possible to help facilitate the sale of MF Global?
During an event with profound impact on market integrity, normal protocol would be for Chairman Gensler to consult domain experts and career staff regarding the implications of a bankruptcy decision. The Chairman's actions did not to follow anticipated protocol and resulted in decisions being made regarding abdicating responsibility of the bankruptcy process. An investigation into CFTC procedures would document that actions that impact the stability or integrity of markets are typically considered in conjunction with staff. At a minimum, Chairman Gensler could have reached out to the domain regulators and career staff to mention what was about to occur regarding the bankruptcy process.
During the period of time Chairman Gensler managed the MF Global process, until November 3, 2011, serious questions were raised. MF Global had violated segregation levels in July, 2011 and the manipulation of disclosure documents to the Securities and Exchange Commission (SEC) over the summer of 2011 obfuscated critical risk disclosure in MF Global's bond offering. A CFTC Commissioner called for an investigation into this behavior, but his calls went ignored by officials.
What to Expect from the Congressional Report on MF Global
The report is not expected to provide any clarity towards criminality, as Congress is unlikely to interfere with an ongoing investigation. The report will likely focus on MF Global risk management, lack of controls and document "chaos" and "confusion" in the bankruptcy process has been widely reported. The report will engage in a review of regulatory discussions and provide a review of certain regulatory expectations. A review of both CFTC and CMEGroup performance may be included, but the report won't address what should or should not have been done. It is unknown the extent to which the actions of November 1, 2011 will be addressed in the report.
Overall the report's tone is anticipated to be similar to the bankruptcy trustee's report in that it will document facts, identifying potential areas of concern. Unfortunately, some areas of concern could be addressed using nuanced statements and references. Don't expect the report to provide any clear smoking guns - particularly as it relates to the guilt of Jon Corzine, MF Global's acknowledged leader.