MF Global: Missing Money, Failed Sale, Bankruptcy
MF GLOBAL COLLAPSES AMIDST DISCOVERY OF MISSING MONEY
MF Global Holdings LTD, headquartered in New York City, filed for bankruptcy on Monday, October 31, 2011 after it was discovered that there was hundreds of millions of dollars missing from customers’ accounts. This marks the eighth largest corporate bankruptcy in U.S. history and the largest Wall Street firm to collapse since the Lehman Brothers debacle in September 2008. The surprise discovery of some $950 million in missing money from customer accounts caused a tentative deal to sell the firm to Interactive Brokers to blow up.
The result was that all customer activity was frozen causing the Securities Investor Protection Corporation to initiate plans to begin liquidating the MF Global brokerage unit to unfreeze customer accounts.
MF GLOBAL FAILED TO SEGREGATE CUSTOMERS’ MONEY
Federal regulators have discovered that hundreds of millions of dollars of customers’ money, which is supposed to be segregated from the firms’ own money, is missing. This comes on the heels of huge bets on euro zone sovereign debt causing the company’s stock to plummet in the week prior to the bankruptcy filing. Immediately, the firms’ credit rating was cut to junk by the agencies.
NYSE TO DELIST MF GLOBAL STOCK
The New York Stock Exchange (NYSE) has announced that it will delist the shares of MF Global stock following the bankruptcy filing and its third quarter loss. MF Global apparently failed after getting margin calls related to over $6 billion of European government debt investments.
The stock which plummeted 67% the week prior to the bankruptcy filing hasn’t traded since Friday, October 28, 2011 and the NYSE Regulation unit has said that MF Global “is no longer suitable for listing.”
MF GLOBAL EXEC SAYS FIRM MISUSED CLIENTS’ MONEY
An unnamed MF Global executive is said to have admitted that the firm used client money when its customers yanked their money out and business partners wanted more collateral to guarantee trades in light of the firm’s enormous exposure to European sovereign debt.
The Commodity Futures Trading Commission (CFTC) is trying to determine what MF Global did with the $900 million or so of customers’ money and where it is.
MF GLOBAL CLIENTS AWAIT GETTING THEIR MONEY
Clients of the now defunct broker-dealer MF Global are now concerned about when they are going to be able to access their money. The Securities Investor Protection Corporation (SIPC) is advising customers to be patient and begin gathering documents which will verify their claims, such as canceled checks, trade confirmations and account statements.
According to the SIPC and trustee James Gidden, claim forms will be sent to customers. Some examples of how long this might take are that it took 30 days to get the forms out in the Lehman Brothers debacle and 17 days in the Bernie Madoff Ponzi scheme.
A judge approved the MF Global liquidation on October 31, 2011, after the SIPC indicated that the firm may not be able to meet its obligations to customers who have accounts with the firm.
Unfortunately, this means that customers can only sit back and wait to see when and if they will get their money back.
FBI ENTERS INTO THE MF GLOBAL COLLAPSE
As the Commodity Futures Trading Commission (CFTC) announces that it is issuing subpoenas to MF Global and ordering them to refrain from document destruction, the Federal Bureau of Investigation (FBI) enters into the investigation of MF Global and the missing customer funds.
The involvement of the FBI is indicative of the need to find out exactly what went on during the last week of October 2011 when the firm announced a big third quarter loss, had its credit rating slashed to junk by the agencies, tried unsuccessfully to unload the company in a fire sale and filed for bankruptcy protection. The FBI will be trying to figure out if there was a crime committed.
SIPC CLAIMS AND THE LIQUIDATION OF MF GLOBAL
Following the Chapter 11 bankruptcy filing of MF Global, the Securities Investor Protection Corporation (SIPC) jumped in to have a trustee appointed and begin the liquidation proceedings because “customer accounts were at risk since counterparties were refusing to do business with MF Global,” and because the company was “incapable of making the calculations required of them under the financial responsibility rules.”
It is customary for the SIPC to oversee the orderly liquidation of a brokerage firms’ customer accounts where there is missing money or securities and the firm collapses. The SIPC will provide coverage of up to $500,000 for missing money or securities, including a limit of $250,000 for missing cash. The limit for cash was increased from $100,000 under the Dodd-Frank Wall Street Reform and Consumer Protection Act last year. What is and isn’t covered by the SIPC is very specific and complex.
Basically, the process for recovery will begin with the trustee sending a claim form with instructions and deadlines for submitting the claim. Typically, this will be between 30 and 60 days. To substantiate a claim, documentary proof will be required to show what is owed, if anything. This documentary proof will be in the form of cancelled checks, trade confirmations and account statements, among other things.
It should be noted that claims must be filed promptly otherwise they will be “subject to delayed processing and possibly, limited payment.” Federal law serves to bar claims that are made more than 6 months past the deadline. Because of the complexity of the claims procedure and the importance of what is at stake, it is never a good idea to try and handle the recovery of your lost money without competent legal representation.
If you have been a customer of MF Global and have lost money or have been unable to access your funds, please contact our securities law firm immediately at 1-800-259-9010, for a confidential consultation about your particular situation and what we can do for you.