The ongoing case of MF Global

May 18, 2012



In the continuing saga of the MF Global investigations, a number of small acts have shared the stage. The potential for favoritism and lack of impartiality has been brought up, and— most interestingly—the missing money has been found. Sort of.

The customer funds— roughly $1.6 billion—which “vaporized” in the oft-cited “chaos” of the dying days of MF Global have been found. The announcement was made Tuesday, April 24 and the investigation into the money’s whereabouts was called closed. However, this announcement is drawn into question by earlier attempts at retrieving money from the sources named in the “discovery.”

Roughly 43.75 percent of the money ($700 million) was tracked to MF Global’s UK subsidiary in London. About 42.5 percent of the money ($680 million) was sent to financial institutions with which MF Global did business, among them JPMorgan. The remaining 13.75 percent ($220 million) was improperly moved between different customer accounts, mostly from the accounts of securities customers and into the accounts of commodities customers.

Of course, “found” and “returned” are two different concepts. Investigators may know where the missing funds are, but the process of getting most (or any) of it back to the rightful customers may be a long one.

James Giddens, the trustee appointed to recover the missing funds, began litigation in the UK for the return of the $700 million. Problems regarding UK vs. U.S. laws have arisen. The process has been described as being slow with no guarantees of success.

A similar conflict is ongoing with JPMorgan. Giddens is more hopeful that talks with JPMorgan will be more quickly fruitful than in the UK. Giddens told CNN Money his team has “a solid basis for seeking the recovery of some of the funds transferred to JPMorgan.”

The customer funds misplaced into other customer accounts have been described as “in limbo” with disputes raging over which customers rightly claim it.

As these conflicts continue, MF Global customers did see some relief. Approximately $685 million in reserve funds were cleared for distribution to wronged customers at the beginning of May. This distribution will raise the average amount returned to customers to about 80 percent of their initial loss.

The investigation itself has not been without its own drama; veiled accusations of favoritism and cronyism have been raised in two areas.

Sen. Robert Menendez, D-NJ, who is on the Senate Banking Committee currently examining MF Global, has been asked to recuse himself by a Republican rival. New Jersey Republican state Sen. Joseph Kyrillos’ primary complaint is Menendez cannot be impartial in his examination of the MF Global bankruptcy.

Menendez was appointed to the Senate by Jon Corzine—CEO of MF Global at its collapse—when Corzine left the position to be the state’s governor in 2006. Kyrillos points to Menendez’ extensive questioning of MF Global trustees, which conspicuously lacked questions regarding Corzine’s involvement, as evidence of his bias.

Menendez and his campaign manager have called the request politically motivated, however. As Kyrillos is competing with Menendez this November for Menendez’ federal Senate seat, the move is seen by some as a calculated campaign scheme to curry favor with New Jersey conservatives.

Similar concerns exist with U.S. Attorney General Eric H. Holder Jr. In early May, Rep. Michael Grimm, Republican of New York City and member of the House Financial Services Committee, and 26 other House Republicans sent a letter to the Department of Justice (DOJ) requesting Holder be replaced by an independent counsel.

The concern is Corzine’s ties to Washington, including supposedly “highly placed individuals” who are “very close” to the DOJ investigation, have and will result in less than impartial proceedings. Though Grimm agreed no direct evidence of favoritism exists, the time that has passed without solid action makes the issue of public perception important to address. — Kerry Halladay, WLJ Editor