Home > Uncategorized > 2012/12/31: Quick Post: Maybe Happy(er) New Year already for some MF Global clients

2012/12/31: Quick Post: Maybe Happy(er) New Year already for some MF Global clients

© 2012 ROHR International, Inc. All International rights reserved.

After the demoralization of not seeing anything near full funds for many, many months, there just might be some very good news for those with claims against failed US brokerage MF Global.

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An agreement between bankruptcy trustees settling competing claims between the US and UK wings of the failed form will free up and additional $500-600 million for the main (i.e. US) brokerage unit to return to customers. There are more details in the Washington Post article with the headline noted above, and we suggest the online version for sidebar links to the current Fiscal Cliff negotiation developments.

And there is an ironic twist to all this…

 

 

…in the degree to which many of the folks who were awarded initial reimbursements from the US brokerage side of MF Global transferred the money to prominent and highly respected Peregrine Financial Group operating as PFG. Of course, that was the subsequently much more egregious failure of a brokerage where the collapse went beyond the admittedly bad bets visited on MF Global by misguided head Jon Corzine.

And ‘egregious’ is the operative term for the PFG failure, because it not only involved a far more direct embezzlement by overbearing head Russell Wassendorf… it also highlighted a long running regulatory failure. Evidently the Commodity Futures Trading Commission and National Futures Association auditors accepted their financial statements and verification of accounts from the firms without ever actually contacting a bank to verify the balances.

This highlighted the degree to which the regulators prior to and even after the Madoff affair and MF Global failure were still whistling past the graveyard on the longstanding futures industry claim (true until the MF Global failure) that “no customer has ever lost a single cent from segregated funds (i.e. separate, ostensibly firewalled accounts)” at a futures brokerage. And Wassendorf had been creating phony documents from as far back as the 1980’s with nothing more sophisticated than a high end copy machine and Photoshop software.

Part of the irony is not just that he was able to do this, yet also that he didn’t get caught sooner and that it had never occurred to the regulators through a whole series of different administrations to pick up the phone and contact a bank to verify a corporate balance.

But there’s even more irony in the extended tale. After all of the passingly rightful complaints about the slow process of the MF Global trustee (where a judge had to force an early distribution), it seems that the best place for many of the failed firm’s client funds was with the trustee instead of a rapid transfer to what was one of the more highly respected alternative firms that was the beneficiary (in a more direct manner than anyone might have fathomed at the time) of many account transfers.

There is a great quote from the 17th century French fabulist and poet Jean de la Fontaine on the irony of how, “A person often meets his destiny on the very path he took to avoid it.”  It seems a bit of a better fate for quite a few MF Global clients that the US trustee was so parsimonious with the distributions until the global settlement was secured with the firm’s UK wing

Hope it was a fine holiday weekend for all, and is a safe and enjoyable New Year’s Eve celebration.  

And as always, thanks for your interest throughout the year.

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