The US Commodity Futures Trading Commission (CFTC) has issued a press release today, outlining that customers of the bankrupt MF Global brokerage will get paid back in full. The publicly listed brokerage has collapsed back in October 2011, after a financial disaster caused by bets on European sovereign debt products. More than $1.2 billion in lost customer funds will be fully paid back to them according to the court appointed trustee on the bankruptcy case, James Giddens.
Sounds like a case of deja-vu? There is a fair reason for that – after the company had been sentenced in November to begin repayments it has appealed the US District Court’s for the Southern District of New York decision on a Federal level. The appeal however has been unsuccessful and the company will begin paying back following a permission from the bankruptcy court to remedy any shortfall of funds by disposing of MF Global’s general estate.
An additional penalty has been imposed that totals to $100 million in civil monetary penalties, however the fine will be paid only after the firm’s customers’ funds have fully been redeemed. Acting Director of the CFTC’s Division of Enforcement, Gretchen Lowe stated that “throughout the Division’s investigation and ongoing litigation, ensuring full restitution to customers has been a primary focus. I am pleased that the terms of the consent Order are now being fulfilled and that these final restitution payments will satisfy the remaining shortfall. The CFTC will continue to ensure that those who violate U.S. commodity laws and regulations designed to protect customer funds will be held accountable.”
MF Global’s collapse
The company has been one of the major derivatives brokers before going bankrupt in the aftermath of one of the most serious phases of the European Sovereign Debt crisis in 2011. It has been offering a wide range of products including exchange-traded derivatives, CFDs, foreign exchange and spread betting.
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The company was part of Man Group until 2007, when it spun off in an IPO move that separated the brokerage and investment arms of the company. Trouble started when in 2008 the company made public a bad debt provision due to an individual who conducted unauthorized trading.
After paying a hefty $10 million fine to the CFTC, the firm went on to appoint former Goldman Sachs Chief Executive Jon Corzine as CEO in 2010. In October of 2011 the firm transferred funds from the segregated client accounts to its own account to make up for a shortfall in collateral. According to the proceedings the funds were used for several days before MF Global reported on October 31st of 2011 that customers were short of $891,465,650.
Bad trades gone worse
On October 26th 2011 an assistant treasurer in Chicago named Edith O’Brien had approved transferees from the segregated client accounts of MF Global to JP Morgan Chase totaling $615 million. The transfer was marked as an intraday loan, however at the end of the day no funds were received back. That did not stop her from transferring similar “loans” in the coming days.
The timeline continues on the 28th of October, when two MF Global officials had noticed that $300 million was missing from the segregated customer accounts, while in the mean time Jon Corzine ordered O’Brien to transfer $175 million to JP Morgan Chase to cover an overdraft loan. In the interim the sovereign debt crisis forced the hands of European policymakers that boosted the firepower of the Euro Zone’s bailout fund to $1 trillion Euros which ultimately resulted in a gradual wave of calm coming to sovereign debt markets around Europe.
For MF Global it was just a bit too late, as well as for all individuals involved in the wrongdoing. The CFTC litigation continues against MF Global Holdings Ltd., Jon S. Corzine and Edith O’Brien.