MF Global
   HOME

TheInfoList



OR:

MF Global, formerly known as Man Financial, was a major global financial
derivatives The derivative of a function is the rate of change of the function's output relative to its input value. Derivative may also refer to: In mathematics and economics * Brzozowski derivative in the theory of formal languages * Formal derivative, an ...
broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...
, or commodities brokerage firm that went bankrupt in 2011. MF Global provided
exchange-traded An exchange-traded product (ETP) is a regularly priced security which trades during the day on a national stock exchange. ETPs may embed derivatives but it is not a requirement that they do so - and the investment memorandum (or offering document ...
derivatives, such as
futures Futures may mean: Finance *Futures contract, a tradable financial derivatives contract *Futures exchange, a financial market where futures contracts are traded * ''Futures'' (magazine), an American finance magazine Music * ''Futures'' (album), a ...
and options as well as
over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescr ...
products such as contracts for difference (CFDs),
foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
and
spread betting Spread betting is any of various types of wagering on the outcome (game theory), outcome of an event where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome, such as fixed-odds betting, fixed-odds (or mon ...
. MF Global Inc., its broker-dealer subsidiary, was a
primary dealer A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a market maker of government securities. The government may regulate the behaviour and number of ...
in
United States Treasury securities United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...
. A series of perceived liquidity problems and large fines and penalties dogged MF Global starting in 2008, and led to its bankruptcy in 2011. In 2011, MF Global faced major pressures to its liquidity over several months. Some analysts and financial commentators indicate that MF Global probably experienced a number of trading days in 2011 during which the firm's bets on sovereign debt would have required the use of customer funds to meet
capital requirement A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ad ...
s, thereby maintaining operating funds and possibly overall solvency. A large part of these pressures on MF Global were a result of the firm's involvement in a significant number of
repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...
s. Many of these repo agreements were conducted off their
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
. Also, MF Global made a $6.3 billion investment on its own behalf in bonds of some of Europe's most indebted nations. Failure of those, and other repo positions, contributed to the massive
liquidity crisis In financial economics, a liquidity crisis is an acute shortage of ''liquidity''. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrow ...
at the firm. MF Global experienced a meltdown of its financial condition, caused by improper transfers of over $891 million from customer accounts to a MF broker-dealer account to cover losses created by trading losses. On October 31, 2011, MF Global executives admitted that transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global's U.K. subsidiary to cover (or mask) liquidity shortfalls at the company occurred on October 28, 2011. MF could not repay these monies with its own funds. Improper co-mingling, or mixing, of company and client funds took place for days before the illicit transfer and loans, and perhaps for many other days earlier in the year. According to the ''New York Times'', "MF Global dipped again and again into customer funds to meet the demands", perhaps beginning as early as August 2011. MF Global declared bankruptcy on October 31, 2011, and the company was liquidated beginning in November 2011. The trustee liquidating the company said that the losses incurred by customers of MF Global stood at $1.6 billion at April 2012. In January 2013, a judge approved a settlement that would return 93 percent of customers' investments, with the prospect of additional payouts from the company's general estate. In December 2014, MF Global Holdings settled a U.S. government lawsuit, agreeing to pay $1.2 billion in restitution and a $100 million fine for customer losses tied to the company's 2011 collapse.


History


Origins

MF Global traces its roots to the sugar trading business started by
James Man James Man (1755–1823) was the founder of Man Group. Biography Born in Whitechapel and apprenticed to a William Humphrey as a barrel maker, James Man decided to establish his own business as a sugar-broker in 1783. In 1784, he secured a contra ...
in England in 1783, which evolved into broader commodities trading before its later transformation into a
financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
business during the 1980s focused on commodity futures trading.


The 1900s: Growth, diversification

MF Global's former parent, then known as ED&F Man, diversified from pure cash commodities into commodity futures in the late 1970s, and established the
Anderson Anderson or Andersson may refer to: Companies * Anderson (Carriage), a company that manufactured automobiles from 1907 to 1910 * Anderson Electric, an early 20th-century electric car * Anderson Greenwood, an industrial manufacturer * Anderson ...
Man futures brokerage in 1981. It later changed its name to "ED&F Man International" and then "Man Financial". ED&F Man operated as a
partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments o ...
through to the 1970s, when it started an international expansion which, by 1983, increased its staff 650 employees. ED&F Man listed on the
London Stock Exchange London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
in 1994, changing its name to "
Man Group Man Group plc is an active investment management business listed on the London Stock Exchange. It provides a range of funds across liquid and private markets for institutional and private investors globally and is the world's largest publicly t ...
" in 2000. Its agricultural business, which retained the ED&F Man name, was sold to management the same year.


The 1980s-Early 2000s: Acquisitions, expansion and brokerage unit growth

The rapid expansion of the Man Investments unit in the emerging
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
management business shrouded many investors from the development of its brokerage unit. Man Financial embarked on a series of acquisitions, which expanded its product capability and geographic reach, starting in 1989 with the purchase of the Chicago-based GNP Commodities, and including well-known industry names such as Geldermann, Tullett & Tokyo Futures, First American Discount Corp., Australia's
Ord Minnett Ord Minnett is an Australian wealth management company. History Ord Minnett was founded in 1951 by Charles Ord and Jack Minnett. In 1969, Bankers Trust and Ord Minnett formed BT-Ord, a merchant bank with Ord Minnett having a 60% shareholding. Or ...
and GNI.


2002-2007: Acquisitions of a trading platform, client assets

The 2002 purchase of GNI was the largest of these and gave Man Financial access to the then growing Contract for difference market and GNI's trading platform GNI touch. However, in 2005 Man Financial made its largest deal with the transformative $323 million acquisition of client assets and accounts from entities of
Refco Refco was a New York City-based financial services company, primarily known as a broker of commodities and futures contracts. It was founded in 1969 by Raymond Earl Friedman as Ray E. Friedman and Co. Prior to its collapse in October, 2005, the ...
, following the U.S. financial-services group's collapse in late 2005. The Refco deal followed a hotly contested auction with
Cerberus Capital Cerberus Capital Management, L.P. is an American private equity firm,Leaders Magazine"Providing Economic Opportunity: An Interview with The Honorable Dan Quayle, Chairman, Cerberus Global Investments, LLC". specializing in distressed investing. ...
, the
private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a ty ...
group, and boosted Man Financial's scale in retail and institutional business.


2007 Spin-off and going public

MF Global was the brokerage segment of
Man Group Man Group plc is an active investment management business listed on the London Stock Exchange. It provides a range of funds across liquid and private markets for institutional and private investors globally and is the world's largest publicly t ...
until 2007, when the Man Group decided to split the investment and brokerage businesses so they could each focus on their own markets. Man Financial was spun off from Man Group as part of the
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
(IPO) and separation of the brokerage from the
asset management Asset management is a systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles. It may apply both to tangible assets (physical objects such as buildings ...
operation. The brokerage business made the final identity change to MF Global simultaneously with that IPO, which occurred in June 2007. The then-separate investment business retained the name of Man Group.MF Global: History From IPO to Bankruptcy
Jacob Bunge, ''Wall Street Journal'' "Deal Journal" blog, October 31, 2011
The company was registered in
Bermuda ) , anthem = "God Save the King" , song_type = National song , song = " Hail to Bermuda" , image_map = , map_caption = , image_map2 = , mapsize2 = , map_caption2 = , subdivision_type = Sovereign state , subdivision_name = , e ...
, but subsequently moved its registration and headquarters to the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
.


2008-2009: Major fines, liquidity concerns and stock price decline

On February 28, 2008, MF Global announced a
bad debt Bad debt, occasionally called uncollectible accounts expense, is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons, often due to the debtor not ...
provision in the amount of $141.5 million. The provision was the result of unauthorized trading by a representative in a MF Global branch office, who on February 27, 2008, while
trading Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct excha ...
in the wheat futures market in his personal account, substantially exceeded his authorized trading limit. MF Global held a conference call at 11 a.m. EST on February 28 to discuss the matter. MF Global was fined $10,000,000 by the CFTC over the incident and an unrelated
natural-gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon di ...
incident from 2003. The
CME Group CME Group Inc. (Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, The Commodity Exchange) is an American global markets company. It is the world's largest financial derivatives exchange, and trades in asset class ...
also fined MF Global $495,000 over the wheat incident. On March 17, 2008, shares of MF Global plummeted on liquidity fears. The CME,
ICE Ice is water frozen into a solid state, typically forming at or below temperatures of 0 degrees Celsius or Depending on the presence of impurities such as particles of soil or bubbles of air, it can appear transparent or a more or less opaq ...
, Nymex and CFTC issued statements confirming MF Global was in compliance with regulatory and financial requirements.


March 2010: Jon Corzine named CEO

Jon Corzine Jon Stevens Corzine ( ; born January 1, 1947) is an American financial executive and retired politician who served as a United States Senator from New Jersey from 2001 to 2006 and the 54th governor of New Jersey from 2006 to 2010. Corzine ran fo ...
, former CEO of
Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...
,
Governor of New Jersey The governor of New Jersey is the head of government of New Jersey. The office of governor is an elected position with a four-year term. There is a two consecutive term term limit, with no limitation on non-consecutive terms. The official res ...
, and
United States Senator The United States Senate is the Upper house, upper chamber of the United States Congress, with the United States House of Representatives, House of Representatives being the Lower house, lower chamber. Together they compose the national Bica ...
, began his tenure as CEO of MF Global in March 2010. Corzine spent nearly all of the 9 years prior to joining MF Holdings as either U.S. Senator or governor. From 1994 to 1999, Corzine held the role of chief executive officer for Goldman Sachs.


The looming crisis, bankruptcy and collapse


October 2011: MF Global bankruptcy and customer funds shortfall

On Sunday, October 30, 2011, a unit of the New York-based brokerage first reported to the
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an a ...
(CME) and the
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Ac ...
(CFTC) a "material shortfall" of hundreds of millions of dollars in segregated customer funds. Customer accounts were frozen the same day. On October 31, 2011, MF Global reported the shortfall in customer accounts at $891,465,650 as of close of business on Friday, October 28, 2011. According to the trustee overseeing liquidation the shortfall may be as large as $1.6 billion. In March 2012, Bloomberg reported on a memo produced by congressional investigators that quoted an internal company e-mail relating to a $175 million transfer which was a subject of their investigation. Initial media reports suggested impropriety on Corzine's part, but this was later disproved. According to the New York Times, the employee responsible for the transfer emailed Corzine stating the transfer was a "House Wire", meaning it came from the firm's own account. The instructions Corzine had given were to deal with several overdrafts at JPMorgan Chase, but never related to any specific accounts or specific transfers made. A spokesperson for Corzine responded that Corzine "never directed Ms. O'Brien or anyone else regarding which account should be used to cure the overdrafts, and he never directed that customer funds should be used for that purpose. Nor was he informed that customer funds had been used for that purpose." In fact, as the New York Times reported, Corzine had been given specific assurances that the transfer in question was proper, and that no customer funds had been used. Subsequent court filings also attest to this fact. On November 5, 2013, The New York Times reported that MF Global customers would likely recover 100 percent of their funds. A spokesman for Corzine said "Mr. Corzine is very pleased that all customers will receive a full recovery. This is a great outcome, which has been anticipated for many months." Customers have since received distributions making them whole.


Re-purchase agreements used extensively by brokerage

The brokerage used a large number of complex and controversial
repurchase agreement A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...
s or "repos" for funding and for leveraging profit, many off their balance sheet. Some of these complex repos have been described as a wrong-way $6.3 billion bet MF Global made on its own behalf on bonds of some of Europe's most indebted nations. Failure of the repo positions helped cause the liquidity crisis at the firm. The sudden disappearance of so much liquidity may indicate a scandal and crisis related to the widespread practice among US and UK brokers of
rehypothecation Hypothec (; german: Hypothek, french: hypothèque, pl, hipoteka, from Lat. ''hypotheca'', from Gk. : hypothēkē), sometimes tacit hypothec, is a term used in civil law systems (e.g. law of entire Continental Europe except Gibraltar) or mixed ...
of customer collateral.


Bankruptcy protection sought

On October 25, 2011, MF Global reported a $191.6 million quarterly loss as a result of trading on European government bonds. In response
Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international ...
and Fitch cut the company's credit rankings to junk. Corzine was working to find a buyer, according to several reports. The firm's board met through the weekend of October 29 and October 30 in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. It was stopped from doing new business with the New York Fed until it showed it was able to fulfill its responsibilities as a
primary dealer A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a market maker of government securities. The government may regulate the behaviour and number of ...
, according to a statement on the regulator's website. Trading in MF Global's stock was halted. On Monday October 31, 2011, MF Global filed for
Chapter 11 bankruptcy Chapter 11 of the United States Bankruptcy Code (Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, whe ...
. This became the eighth largest bankruptcy protection filing in the history of the United States to that time. The ''Wall Street Journal'' reported that MF Global would seek Chapter 11 bankruptcy protection after investing more than $6.3 billion in sovereign bonds issued by European countries. According to the Commodity Futures Trading Commission data, on August 31, 2011, MF Global had $7.3 billion in customer assets. The MF Global bankruptcy was the largest Wall Street firm to collapse since the
Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, a ...
incident in September 2008.


Bankruptcy filing, the fallout and possible causes

At 10:21 AM Eastern Time in Manhattan on October 31, 2011, the ''
New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...
'' reported that "in papers filed in U.S. Bankruptcy Court in
Manhattan Manhattan (), known regionally as the City, is the most densely populated and geographically smallest of the five boroughs of New York City. The borough is also coextensive with New York County, one of the original counties of the U.S. state ...
, MF Global listed assets of $100 million to $500 million and liabilities of more than $1 billion."Global Files for Bankruptcy", date=October 31, 2011.
/ref> By late afternoon (4:21 PM Eastern), Bloomberg News filed a story reporting that "the firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan" after making bets on European sovereign debt. MF Global filed for bankruptcy protection because of heavy purchases of sovereign debt from some mired in the European Debt Crisis (including
Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
,
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical re ...
,
Portugal Portugal, officially the Portuguese Republic ( pt, República Portuguesa, links=yes ), is a country whose mainland is located on the Iberian Peninsula of Southwestern Europe, and whose territory also includes the Atlantic archipelagos of ...
, and
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , i ...
). The problems of the week preceding the
Chapter 11 Chapter 11 of the United States Bankruptcy Code (Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, wheth ...
filing scared off investors en masse. These massive purchases of debt were highly leveraged by MF Global, using client monies in client accounts under the control of the firm. Upon the filing, credit ratings agencies immediately cut the ratings of MF Global to junk status. Some commentators have suggested the failure of MF Global highlights the difficulty in regulating complex global financial firms, the dangers of off-balance-sheet accounting as well as touching on the
European sovereign debt crisis The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone membe ...
. Most observers of all political stripes considered MF global to be over-leveraged and under-capitalized. Many took its collapse as a reminder that whatever the root causes of the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, some of the primary problems remain because of the lack of needed regulatory changes.


Creditors' claims in the billions

The largest creditor listed in the filing was JPMorgan Chase, with a claim of $1.2 billion. As administrative agent, JPMorgan structured a revolving credit facility. JPMorgan syndicated all but $80 million to other investors. Therefore, its own true exposure was $80 million. The second largest creditor was Deutsche Bank (on behalf of bondholders), with a claim of $325 million.


Board of directors; criticism of Corzine, board

At the time of its bankruptcy filing, MF's board of directors included: * Jon S. Corzine, chairman and chief executive officer * David P. Bolger, independent member, formerly with
Chicago 2016 The Chicago bid for the 2016 Summer Olympics and 2016 Summer Paralympics, Paralympics was an unsuccessful bid, first recognized by the International Olympic Committee (IOC) on September 14, 2007. The IOC shortlisted four of the seven applicant ...
and
Aon Corporation Aon PLC () is a British-American multinational financial services firm that sells a range of risk-mitigation products, including Commercial Risk, Investment, Wealth and Reinsurance solutions, as well as boutique strategy consulting through Aon ...
* Eileen S. Fusco, attorney and CPA, formerly with
Deloitte & Touche Deloitte Touche Tohmatsu Limited (), commonly referred to as Deloitte, is an international professional services network headquartered in London, England. Deloitte is the largest professional services network by revenue and number of profession ...
*
David Gelber David (; , "beloved one") (traditional spelling), , ''Dāwūd''; grc-koi, Δαυΐδ, Dauíd; la, Davidus, David; gez , ዳዊት, ''Dawit''; xcl, Դաւիթ, ''Dawitʿ''; cu, Давíдъ, ''Davidŭ''; possibly meaning "beloved one". w ...
, independent member, formerly with
ICAP PLC ICAP may refer to: Computers * ICAP/4, analog circuit emulation software * Internet Content Adaptation Protocol, a lightweight HTTP-like protocol * Inter exchange Client Address Protocol for Ethereum platform Organizations * ICAP at Columbia Univ ...
,
Citibank NA Citibank, N. A. (N. A. stands for " National Association") is the primary U.S. banking subsidiary of financial services multinational Citigroup. Citibank was founded in 1812 as the City Bank of New York, and later became First National City Ba ...
,
Chemical Bank Chemical Bank was a bank with headquarters in New York City from 1824 until 1996. At the end of 1995, Chemical was the third-largest bank in the U.S., with about $182.9 billion in assets and more than 39,000 employees around the world. Beginning ...
and
HSBC HSBC Holdings plc is a British multinational universal bank and financial services holding company. It is the largest bank in Europe by total assets ahead of BNP Paribas, with US$2.953 trillion as of December 2021. In 2021, HSBC had $10.8 tri ...
* Martin J.G. Glynn, independent member, former
CEO A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
of
HSBC HSBC Holdings plc is a British multinational universal bank and financial services holding company. It is the largest bank in Europe by total assets ahead of BNP Paribas, with US$2.953 trillion as of December 2021. In 2021, HSBC had $10.8 tri ...
* Edward L. Goldberg, founder of Longview Investments, formerly with
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment bank ...
* David I. Schamis,
managing director A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
at J.C. Flowers & Co., and * Robert S. Sloan, founder and
managing partner A partner in a law firm, accounting firm, consulting firm, or financial firm is a highly ranked position, traditionally indicating co-ownership of a partnership in which the partners were entitled to a share of the profits as "equity partners". The ...
of S3 Partners New York, formerly with
Credit Suisse Credit Suisse Group AG is a global investment bank and financial services firm founded and based in Switzerland. Headquartered in Zürich, it maintains offices in all major financial centers around the world and is one of the nine global " ...
and
Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, a ...
In the immediate wake of the bankruptcy, Corzine and the board were criticized in the financial press for their apparent non-awareness of the company's condition in the immediate lead-up to the event and their apparent inabilities to manage the risk the company had assumed.


Naming of bankruptcy trustees, controversy

Former
Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice, ...
director and federal judge Louis J. Freeh was named trustee for the MF Global holding company (MF Global Holdings Ltd.) bankruptcy case on November 25, 2011. This appointment was made just four days after Freeh was named to head the investigation for Penn State University trustees of the
Penn State sex abuse scandal The Penn State child sex abuse scandal concerned allegations and subsequent convictions of child sexual abuse committed by Jerry Sandusky, an assistant coach for the Penn State Nittany Lions football team, over a period of at least fifteen years ...
. For the MF Global bankruptcy case, Freeh was appointed by U.S. Trustee Tracy Hope Davis, working under the authority of U.S. Bankruptcy Court judge Martin Glenn. Louis Freeh came under criticism following his appointment as MF Global Holdings bankruptcy trustee from politicians, commentators and former federal officials for trying to capitalize on cases such as MF Global and the Penn State sex abuse scandal, despite a federal career of his own that was fraught with controversy. Other experts and observers, however, found Freeh to be eminently qualified, and an excellent choice for trustee. These individuals expressed confidence that Freeh and his team could sort through the financial mess at MF Global, find the best possible legal resolutions to suggest and retrieve as much money for clients as possible. Separately, James Giddens was named the trustee of the primary MF Global Holdings subsidiary, MF Global Inc., the broker-dealer.


Auditor subpoenaed for clients' assets information

U.S. regulators subpoenaed MF Global's auditor,
PricewaterhouseCoopers PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four accounting ...
LLP, for information on the segregation of assets belonging to clients trading on U.S.
commodity exchanges A commodities exchange is an exchange, or market, where various commodities are traded. Most commodity markets around the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, mi ...
.


Employees fired without severance pay

The bankruptcy trustees office charged with liquidating MF Global fired 1,066 employees of the broker-dealer subsidiary on November 11, 2011. The terminated employees did not receive any bonuses, deferred compensation or severance pay. The trustee's office confirmed that about 200 employees were hired back to assist in the liquidation process, including processing bankruptcy claims and wrapping up necessary business activities.


SEC reviewed debt sales for insider trading fraud

In addition to other investigatory work,
U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
also reviewed trades in MF Global Holdings Ltd. (MF)
convertible bonds In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock i ...
to determine whether some investors sold the debt based on confidential information before the firm's demise.


Bankruptcy trustee, regulators investigate missing client funds

Clearly, client (or customer) accounts were misused to try to cover the bet made on European sovereign debt. Beginning in November 2011, MF Global was investigated by regulators for money missing from client accounts. The shortfall in client accounts at MF Global Holdings Ltd was thought to be around $1.2 billion as of late November 2011, according to the trustee liquidating the company. As the trustees and liquidators continued their work in early 2012, they indicated that the total amount owed to clients was substantially higher. ''
Rolling Stone ''Rolling Stone'' is an American monthly magazine that focuses on music, politics, and popular culture. It was founded in San Francisco, San Francisco, California, in 1967 by Jann Wenner, and the music critic Ralph J. Gleason. It was first kno ...
'' reported in April 2012 that the number stands at $1.6 billion, and that "nobody disputes the fact that MF Global officials dipped into customer accounts and took...customer money." US and UK investors continued waiting to see if and when they would be repaid for the misuse of their client account monies. However, because rehypothecation is not allowed in Canada, the Canadian customers of MF Global were able to recover all their funds within 10 days.


Settlements

With, among other sources of cash, Corzine and other former MF Global executives in 2016 reaching a $132 million settlement with a trustee liquidating the company on behalf of creditors and, in 2015, executives having reached a $64.5 million settlement of separate investor litigation, portions of which were covered by insurance, all customers (as of 2014) and other claims on MF were settled.Stempel, Jonathan
"Corzine in $5 million settlement with US CFTC over MF Global collapse"
Reuters Reuters ( ) is a news agency owned by Thomson Reuters Corporation. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide. Reuters is one of the largest news agencies in the world. The agency was estab ...
, January 5, 2017. Retrieved 2017-01-12.


Corzine's possible role in the firm's collapse

Some prominent financial industry executives, journalists, regulators, politicians - and some MF Global clients - lay the blame for the demise squarely, and primarily, at Corzine's feet. On the day of MF Global's bankruptcy, a Bloomberg reporter wrote "Jon Corzine's risk appetite helped destroy his firm. It also provided an object lesson for Paul Volcker's campaign against
proprietary trading Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using depositors' money) in order to m ...
on Wall Street." Many sources indicate Corzine was heavily involved with the
sovereign debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit o ...
trades that led to the company's demise, indicating the firm took on the positions at his urging as CEO and chairman. Structured-finance commentator
Janet Tavakoli Janet Tavakoli is the president of Tavakoli Structured Finance, Inc., a Chicago-based consulting firm. She has had three books published on credit derivatives, structured finance, and the 2008 global financial crisis. Education and background ...
has alleged that Corzine's MF Global likely had a number of days in 2011 in which the company's bets on sovereign debt would have required the use of customer funds to meet capital requirements, thereby maintaining operating funds and possibly overall solvency. ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' reported as of December 2011 "investigators are now examining whether MF Global was getting away with such illicit transfers as early as August ... a revelation that would point to wrongdoing even before the firm was struggling to survive." The Times also reported that, as MF Global struggled to pay back creditors before parts of the firm could be sold before declaring bankruptcy, "MF Global dipped again and again into customer funds to meet the demands." Bloomberg News reported that such transfers occurred, on at least one occasion, "Per JC's
on Corzine's On, on, or ON may refer to: Arts and entertainment Music * On (band), a solo project of Ken Andrews * ''On'' (EP), a 1993 EP by Aphex Twin * ''On'' (Echobelly album), 1995 * ''On'' (Gary Glitter album), 2001 * ''On'' (Imperial Teen album), 200 ...
direct instruction", according to an internal memo seen by Congressional investigators and Bloomberg. According to Bloomberg, representatives with JP Morgan, who provided
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
for MF Global's operations, were also concerned about the source of funds used to maintain or pay back credit lines. Bloomberg reported that "Barry Zubrow, JPMorgan's chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by dithO'Brien to ensure that MF Global was complying with rules requiring customers' collateral to be segregated. The letter was not returned to JPMorgan." Corzine resigned from the firm in early November 2011.


Corzine's testimony before Congress

Corzine himself told Congressional investigators during his testimony in December 2011 that "I never intended anyone at MF Global to misuse customer funds and I don't believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds." A Bloomberg story reported that "Lawyers said it was no surprise that he repeatedly focused on intent in his testimony," because proving intent is part of the burden of prosecutors in criminal fraud cases. The case has attracted scrutiny from a number of criminal enforcement and regulatory bodies, including the
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options. The Commodity Exchange Ac ...
(CFTC), the
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
, the
Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice, ...
, Congressional investigators, and possibly the Department of Justice (DOJ). In his Congressional testimony, Corzine indicated that Edith O'Brien may have been at least partially responsible for the loss of customer money. His lawyers have also pointed to O'Brien. Friends of O'Brien said she was "being set up as a 'patsy'." On March 28, 2012, O'Brien invoked her Fifth-Amendment right against self-incrimination at a Congressional hearing and declined to testify about the missing funds, or any other matter related to MF Global's bankruptcy.


Fine and lifetime ban

In early January 2017, Corzine accepted a settlement with the CFTC including a $5 million fine to be paid "out of his own pocket rather than from insurance nda lifetime ban from CFTC markets". DOJ had, earlier, declined CFTC's request that it prosecute Corzine.Kurson, Ken
"Jon Corzine Gets $5 Million Fine and Lifetime Ban for Tanking MF Global"
'' New York Observer'', January 6, 2017. Retrieved 2017-01-12.


References

{{Reflist, 2


Further reading

* United States. Congress. House. Committee on Financial Services. Subcommittee on Oversight and Investigations
The Collapse of MF Global: Hearing before the Subcommittee on Oversight and Investigations of the Committee on Financial Services, U.S. House of Representatives, One Hundred Twelfth Congress, First Session, Pt.1-3.
Washington, D.C.: U.S. G.P.O., 2012. * United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs
The Collapse of MF Global: Lessons Learned and Policy Implications: Hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Twelfth Congress, Second Session.
Washington, D.C.: U.S. G.P.O., 2013. *Orol, Ronald D.
"Corzine caused MF Global failure, House panel says"
''MarketWatch'', November 14, 2012. *Weidner, David
"Corzine blundered at MF Global, but how? Commentary: House report focuses on strategy, not customer funds"
''MarketWatch'', November 14, 2012. *Orol, R. D.
"CFTC floats post-PFG, MF Global protections"
''MarketWatch'', October 23, 2012.


External links


MF Global.com

Home

MF Global FX Clear LLC

The Astonishing Collapse of MF Global
The Motley Fool; December 16, 2011. Primary dealers Financial services companies of the United States Companies formerly listed on the New York Stock Exchange Companies based in New York (state) Companies that filed for Chapter 11 bankruptcy in 2011 Financial derivative trading companies American companies disestablished in 2011 American companies established in 2007 2007 establishments in New York City 2011 disestablishments in New York (state) 2007 initial public offerings