Bloomberg News

Bank Funds Won’t Cover MF Global Shortfall, Trustee Says

December 06, 2011

(Updates with Chilton comments in sixth paragraph.)

Dec. 1 (Bloomberg) -- MF Global Inc., the futures brokerage that collapsed on Oct. 31, will have a shortfall in customer funds even if all the money in customer accounts at U.S. depository institutions is recovered, the trustee overseeing the firm’s bankruptcy said.

James W. Giddens, the trustee, has said there may be as much as $1.2 billion in missing funds. MF Global Inc. was a subsidiary of MF Global Holdings Ltd., the New York-based firm run by Jon S. Corzine that failed after making $6.3 billion in wrong-way bets on European sovereign debt.

“The trustee has determined that even if he could recover everything that is at U.S. depositories, there will be a shortfall in what MF Global management should have segregated at U.S. depositories,” according to a document, dated today, from Giddens’s office that was obtained by Bloomberg News. Kent Jarrell, a spokesman for the trustee, confirmed the authenticity of the document, and said it was part of a briefing Giddens gave today in Washington with congressional aides and a lawmaker.

The Commodity Futures Trading Commission, Securities and Exchange Commission, Justice Department and trustee’s office are investigating the missing client funds.

“There is no big pile of money we’re going to find in the U.S. depositories now that we don’t know about,” Jarrell said in a telephone interview today. “When it comes to overseas assets that we believe we have a right to claim on behalf of our customers, we will do everything we can to recover that.”

CFTC Commissioner Bart Chilton, a Democrat, said he will monitor the agency’s staff to ensure it is doing everything possible to collect and properly distribute customer funds.

“I also intend to actively pursue any and all other alternatives to protect customer funds, such as an insurance fund for derivative investors,” Chilton said in an e-mail statement today. “This is an idea whose time has come.”

Corzine, the former Democratic New Jersey governor and U.S. Senator, resigned Nov. 4 as chairman and chief executive officer of MF Global. U.S. House and Senate committees have asked him to testify in mid-December. Corzine was co-CEO of Goldman Sachs Group Inc. before seeking political office.

--With assistance from Phil Mattingly in Washington. Editors: Lawrence Roberts, Gregory Mott

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net; Robert Schmidt in Washington at rschmidt@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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