MF Global shortfall doubles to $1.2bn - FT.com

MF Global shortfall doubles to $1.2bn


The estimated hole in MF Global’s customer accounts has doubled in size to $1.2bn, astonishing traders as the investigation into the broker’s failure enters its fourth week.

The new figure, from the bankruptcy trustee for MF Global’s US brokerage, is equivalent to almost a quarter of the $5.45bn in client funds that the company was required to hold separately from its own funds.

The shortfall has blemished futures markets and left thousands of traders with insufficient margin deposits. Failure to separate customer and house funds is a violation under US law.<
“It’s as serious a situation as one can imagine in these markets,” said Mario Cometti, a lawyer representing MF Global customers. “If such an incredibly tremendous shortfall could have occurred, then there’s obviously huge problems with oversight.”

Estimates of the shortfall have fluctuated since the broker-dealer filed for bankruptcy on October 31 after failing to douse fears over its exposure to European sovereign debt. The Commodity Futures Trading Commission was first told the deficit totalled about $900m, but more recently put it at $600m.

MF Global, which was run by former New Jersey governor Jon Corzine, appears to have acted desperately in its final days and dug into customer funds to meet margin calls in a bid to save the company for a sale, people familiar with the government investigation said.

Investigators have spent weeks reviewing accounts at the firm and other financial institutions. MF Global’s records are sloppy and incomplete, people familiar with the matter said, requiring them to rely on third parties.

Alongside federal authorities, a team led by bankruptcy trustee James Giddens is probing MF Global.

“At present, the trustee believes that even if he recovers everything that is at US depositories, the apparent shortfall in what MF Global management should have segregated at US depositories may be as much as $1.2bn or more,” the trustee said on Monday, stressing “these are preliminary numbers that may well change”.

The prolonged search for the missing money has revived debate over whether US futures traders should have protections similar to those stock investors enjoy when a brokerage fails. The Securities Investor Protection Corporation, created in 1970, has a reserve that covers securities customers for up to $500,000.

Daniel Roth, president of the National Futures Association, a US regulator, said: “I don’t think you can rule anything out at this point, including an SIPC-type insurance programme. Everything’s on the table.”

Gary DeWaal, general counsel at futures brokers Newedge, added: “I think every good idea should be on the table post-MF, and this is just one.” But he warned that such insurance could be impractical because the value of futures positions changes constantly.


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MF Global shortfall doubles to $1.2bn - FT.com