Bloomberg News

MF Global Brokerage Serves Examination Subpoena on Parent

November 17, 2011

(Updates with claim process in 13th paragraph.)

Nov. 14 (Bloomberg) -- The liquidator of broker-dealer MF Global Inc. served an examination subpoena on the company’s parent, according to a court filing.

Trustee James W. Giddens won a judge’s permission on Nov. 4 to subpoena directors and officers of the parent, MF Global Holdings Ltd., saying he needs to find out if fraud or misconduct led to its bankruptcy and what lawsuits he might bring. He is working with regulators to find out how much of customers’ assets are missing, and where they are.

U.S. Bankruptcy Judge Martin Glenn denied a request by the parent to share the information gathered, saying Giddens must probe without interference management’s possible involvement in the alleged shortfall in its collateral for segregated accounts.

Commodity customers of the brokerage that used to be run by former Goldman Sachs Group Inc. co-chief executive officer Jon Corzine have a shortfall of about $593 million, according to a person with knowledge of regulatory probes into the failure of the New York-based firm.

The parent company’s $325 million in 6.25 percent bonds dropped to a record low today of 32 cents on the dollar, down 2.5 cents, and traded at 32.5 cents as of 12:20 p.m. in New York, according to Trace, the Financial Industry Regulatory Authority’s bond-price reporting system. The debt, issued at 100 cents on the dollar in August, was at 50 cents before the company’s bankruptcy filing.

The “around the clock” probe of MF Global’s cash movements is being conducted by the U.S. Justice Department, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the trustee’s staff in cooperation with the Securities Investor Protection Corp., Giddens said on his website last week.

CFTC View

The probe may uncover “patently illegal” actions, Bart Chilton, a CFTC commissioner, said at the time.

“It’s a distinct possibility, some would say probability, that somebody has done something with the money, and that it’s not going to be ‘all of a sudden discovered’ with an innocent explanation,” Chilton said in an e-mailed statement last week.

Kenneth Ziman, a lawyer for the parent company, didn’t immediately respond to an e-mail seeking comment.

MF Global Holdings also is being probed by the Federal Bureau of Investigation, working with U.S. prosecutors, a person familiar with the matter said.

Giddens last week completed the transfer of about 50,000 customers’ commodity accounts to other firms, saying he must hold onto all but about $1.6 billion in collateral until he knows what claims will be filed against the bankrupt broker- dealer.

CME Guarantees

CME Group Inc., which runs a futures exchange, said last week it would provide $250 million in financial guarantees and $50 million in assets to allow the trustee to distribute more collateral.

Giddens retained about $1 billion in collateral for customers, who must file claims, according to his website. He will ask a judge this week to approve a speedy process for the filing and assessing of claims, spokesman Kent Jarrell said today.

Separately, the liquidator of MF Global Hong Kong Ltd. said direct customers’ open trades have all been settled, with only one trade by an affiliate failing.

Overseas Brokers

Overseas brokers who received instructions for transfers or closeouts of positions said there were delays because of the volume of requests, liquidator KPMG said in a report to the bankrupt company’s clients. Brokers would liquidate positions about which they didn’t get instructions, KPMG said in the report posted Nov. 11 on its website.

The MF Global parent sought bankruptcy court protection Oct. 31 after making bets on European sovereign debt and getting margin calls. The firm listed liabilities of $39.7 billion and assets of $41 billion in Chapter 11 papers. The SIPC sued the broker-dealer the same day to put it in liquidation.

The brokerage case is In re MF Global Inc., 11-ap-2790, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Patricia Hurtado and Pierre Paulden in New York. Editors: Charles Carter, John Pickering

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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