According to an optimistic reading of the MF Global affair that one does sometimes encounter, the funds to make the customers whole are available, and although it is of course unfortunate (the optimists acknowledge) that the customers have had their patience tried for so long, when the necessary red tape is sorted out, they will get their money back, through the work of the trustees.
A House of Representatives subcommittee on oversight and investigations, chaired by Rep. Randy Neugebauer (R- TX), has issued its long-awaited autopsy of the failure of MF Global, and the report is in general not consistent with such optimism. One of the takeaways from this report is that recovery for the customers of the U.S. based subsidiary, MFGI, is still very much at risk, notwithstanding the efforts of trustee James Giddens, and largely because of a fraught relationship between the US and UK entities.
“Giddens and the MFGUK administrators disagree” the report tells us, “about whether, under U.K. law, Giddens is entitled to have his claim satisfied from the disputed fund before other creditors….A trial is scheduled for April 9, 2013, in the U.K., to resolve the dispute.”
It seems that, if the trial doesn’t go Giddens’ way, the customers whose interests he represents may be out of luck with regard to some portion of that money, depending of course on the claims of those other creditors. Furthermore, as the report also observes, “Because MFGI’s other creditors normally would be entitled to have their claims satisfied … diverting MFGI property to make customers whole will diminish any recovery the company’s creditors otherwise would realize.”
In fisherman’s English: somebody is getting scrod here, though the courts may still need to determine who that is.
Findings
Separately, the report finds:
- That it was Chairman and CEO Jon Corzine who “made several fateful decisions, the cumulative effects of which caused MF Global’s bankruptcy and jeopardized customer funds.”
- That the regulators were not properly coordinated, that is, the SEC and CFTC failed to share critical information with one another.
- That MF Global was less than forthright with regulators and the public concerning its exposure to European bonds and its liquidity/illiquidity
- And that the ratings agencies, Moody’s and S&P in particular, did not “sufficiently review MF Global’s public filings to identify these risks [associated with its proprietary trading positions] when they did emerge.”
European sovereign bonds
Blame the Bookkeepers