MBF Clearing Corp. was sued by the Commodity Futures Trading Commission and accused of failing to properly segregate customer accounts from its own funds and of violating the Commodity Exchange Act.
MBF employees from September 2008 to March 2010 deposited $30 million to $60 million in customer funds into a U.S. government money market fund at JPMorgan Chase & Co. without properly segregating them, the CFTC said today in a complaint in federal court in New York.
The funds weren’t properly titled, and redemption provisions didn’t comply with CFTC regulations, the agency said. Nor was there proper documentation for the account, it said. MBF also allegedly failed to obtain customer segregation acknowledgement letters on two accounts holding funds for foreign customers from February 2007 to April 2010.
“MBF failed to diligently supervise its employees and agents,” the CFTC said in the complaint. “MBF did not have any written policies or procedures governing the opening and maintenance of customer segregated accounts.”
The New York-based firm was accused of failing to maintain sufficient funds in segregation on about 322 business days from Oct. 3, 2008, to March 26, 2010. MBF describes itself on its website as a buyer and seller of commodities futures contracts and says it was founded in 1987.
The CFTC asked for a court order barring MBF’s “unlawful acts and practices” and unspecified civil penalties.
As of Feb. 10, MBF held $57.2 million in customer funds, according to the CFTC. On March 5, MBF’s customer account contained no cash, according to the CFTC.
Mark B. Fisher, MBF’s president and founder, said in an interview that the firm “invested customer segregated money in a U.S. government money market fund in the strongest bank in the world, JPMorgan.”
The CFTC’s complaint acknowledges that MBF was informed by JPMorgan on actual account statements that the account was described as a “Commodity Customer Segregated Bank Account,” Fisher said.
“What the complaint fails to say is that MBF Clearing Corp. had placed its customer funds into the JPMorgan government money market account two days after Lehman Brothers filed for bankruptcy for the sole purpose of protecting its customers’ funds by depositing them in the safest bank in the world and in the most secure investments, namely U.S. government securities,” Fisher said.
Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history on Sept. 15, 2008.
As soon as MBF was notified the JPMorgan account might not qualify for segregation, the firm “moved all of the customer funds out of this account and reported what had occurred to its designated self-regulatory agency, the CME Group Inc.,” Fisher said.
“Not a nickel of customer money was lost,” Fisher said. “We are disappointed that the CFTC has chosen to address this matter through an enforcement proceeding.”
‘Protecting Its Customers’
Fisher said that MBF and its customers also were victims of the collapse of MF Global Holdings Ltd. “Consistent with its approach of protecting its customers, however, MBF took the MF Global losses onto itself and made all of its customers whole,” Fisher said.
MF Global filed for bankruptcy on Oct. 31 after getting margin calls and bank demands for money at its operating unit, MF Global Inc.
The case is CFTC v. MBF Clearing Corp., 12-cv-1830, U.S. District Court, Southern District of New York (Manhattan).
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