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Are MF Global Customer Funds Being Looted to This Day Through the Same Risky Trading That Sunk the Firm?
Reposted from our blog at EconomicPolicyJournal.com
As MF Global customers approach the one month anniversary of the cluster-circus that has become the liquidation proceedings, replete with unnecessary delays, half-measures, and outright deceptive statements by Trustee James W. Giddens (that will only ensure the proliferation of hours billable at $890 each), we wish to highlight an order entered just days after the bankruptcy that gave MF Global Holdings and its affiliates carte blanche to continue the very risky and suspicious trading that led to its demise. A hearing is set for Wednesday, November 30, 2011 at 3:00 pm on this and other germane matters, including the super priority status of JP Morgan Chase (the conflicted first-lien holder) afforded to it ahead of the customers whose segregated accounts were putatively to have been held sacrosanct.
On November 2, 2011, the bankruptcy judge entered a seemingly innocuous order that granted an extension of time to the Debtors (MF Global Holdings Ltd. and MF Global Finance USA Inc.) to comply with the requirements of Section 345(b) of the Bankruptcy Code and an authorization of the continuation of intercompany transactions among the Debtors and non-Debtor affiliates. Detailed arguments were provided in the 19 page Motion of the Debtors filed the day of their October 31, 2011 bankruptcy.
Of particular interest are the arguments for allowance of the continuation of extant investment practices. When reading the pleading, note that "Company" refers specifically to MF Global Inc., the broker dealer/futures commission merchant unit that did NOT file for bankruptcy, while "Debtors" refers to MF Global Holdings and MF Global Finance, which did file for bankruptcy. "Debtors" and "Company" are frequently mixed within paragraphs, which either causes confusion as to intent or allows for an expansive interpretation that justifies the continued looting of customer accounts. All emphasis herein is ours, except for headings:
D. The Debtors Should Be Authorized to Continue Their Investment Practices
23...The Deposit and Investment Practices are governed by an investment policy, which provides that such investment activities must comply with federal and state regulations, as well as any regulations imposed by its regulators. In addition, the investment policy describes the Company’s permissible investments, which include: (a) government securities and government guaranteed securities; (b) money funds; (c) United States Treasury and government money funds; (d) federal agency obligations; (e) corporate obligations; (f) money market instruments; and (g) other permissible investments approved by the Company’s investment committee from time to time.
The blanket generalization in (g) opens the door to any of the investments that the Company, MF Global Inc., had engaged in previously, including the famed $6.3 billion in European debt [off balance sheet] repo-to-maturity trades. Ordinarily, any such investments not guaranteed directly or indirectly by the US government would be subject to a performance bond:
24. Bankruptcy Code section 345(a) authorizes a debtor-in-possession to make deposits or investments of estate money in a manner “as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment.” 11 U.S.C. § 345(a). If a deposit or investment is not “insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States,” Bankruptcy Code section 345(b) provides that the debtor must require that the entity with which the deposit or investment is made obtain a bond in favor of the United States that is secured by the undertaking of an adequate corporate surety. Id. § 345(b).
However, arguments would be made for an exemption:
25. The Court has discretion to modify the section 345(b) requirements “for cause.” 11 U.S.C. § 345(b). Indeed, while these requirements may be “‘wise in the case of a smaller debtor with limited funds that cannot afford a risky investment to be lost, [they] can work to needlessly handcuff larger, more sophisticated debtors...
Sophisticated, indeed. The pleading continues with a rather confusing paragraph that implies the exemption from a performance bond is required for investments that would be in bank accounts, the balances of which exceed FDIC insurance limits. Yet, the final sentence implies there is more going on than simple bank account sweeps when it mentions "[investments and deposits] made by non-Debtor affiliates engaging in the Company's core investments businesses." (Again, "Company" refers to the broker dealer/futures commission merchant unit, while "Debtors" refers to MF Global Holdings and MF Global Finance.)
26. The Debtors submit that the circumstances of this case warrant such relief. The Company is a large, sophisticated entity with a complex Cash Management System that relies on multiple Banks and Bank Accounts on a daily basis. The Bank Accounts used by the Debtors are maintained in the United States and are with stable financial institutions that are insured by the FDIC. Furthermore, in light of the regular deposits and sweeps of the Bank Accounts, requiring the Debtors, or any entity with which money is deposited or invested by the Debtors in accordance with the Deposit and Investment Practices, to incur the expense of posting a bond to the extent that the balances of these accounts exceed FDIC insurance limits at a given time would be especially burdensome and wasteful. Finally, in addition to the Company’s own investment policies that serve as a safeguard of the Debtors’ funds, there is a significant distinction between the Debtors’ own investments and deposits—which support the Debtors’ cash-management function—and those made by non-Debtor affiliates engaging in the Company’s core investments businesses.
27. Accordingly, the Court should authorize the Debtors to continue to deposit funds and invest in accordance with the Deposit and Investment Practices and grant the Debtors a 60-day extension, without prejudice to seek further extensions, to either comply with Bankruptcy Code section 345(b) or to make other arrangements that would be acceptable to the U.S. Trustee.
The Debtors then argue, through a series of complex legal arguments, to be explicitly allowed to continue with intercompany transactions, the relevance of which will be explained following the excerpts.
E. The Debtors Should Be Authorized to Continue Intercompany Transactions
28. The Debtors’ books and records also reflect numerous other intercompany account balances among various Debtors as of the Petition Date. All prepetition intercompany account balances have been frozen, as of the Petition Date, and the treatment of such claims will be determined as part of an overall reorganization plan for the Debtors.
29. To ensure that each individual Debtor will not, at the expense of its creditors, fund the operations of another Debtor entity, the Debtors respectfully request that, pursuant to section 364(c)(1) of the Bankruptcy Code, all intercompany claims against a Debtor by another Debtor arising after the Petition Date as a result of intercompany transactions and allocations (“Postpetition Intercompany Claims”) be accorded superpriority status, with priority over any and all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code, subject and subordinate only to (a) any order granting adequate protection to the prepetition secured lenders and (b) other valid liens...
30. In addition, in connection with their role under the Cash Management System facilitating the operations of the non-Debtor affiliates, the Debtors may, in the ordinary course of business, periodically infuse capital into certain of their subsidiaries and affiliates, including non-Debtor non-U.S. affiliates. These infusions of capital generally are accomplished through the making of intercompany loans. The Debtors use repayments of such loans as a tax efficient method of managing cash throughout their worldwide business enterprise. Because the non-Debtor affiliates are part of the same group of affiliated entities as the Debtors, the entirety of intercompany transactions among Debtors and non-Debtor affiliates alike remain within the spectrum of the Debtors’ control.
31. The relief requested herein is necessary because certain non-Debtor affiliates may require intercompany advances in order to maintain their liquidity and going concern value. Courts frequently have granted such superpriority status to postpetition intercompany claims in cases such as this. ...
33. The Cash Management System allows the Debtors to track all obligations owing between related entities and thereby ensures that all setoffs of intercompany transactions will meet both the mutuality and timing requirements of section 553 of the Bankruptcy Code. Therefore, the Debtors respectfully request that the Debtors and their non-Debtor affiliates be expressly authorized to set off prepetition obligations arising on account of intercompany transactions between a Debtor and another Debtor or between a Debtor and a non-Debtor affiliate. Further, the Intercompany Transactions provide numerous benefits to the Debtors. The Debtors therefore seek to continue the Intercompany Transactions postpetition in the ordinary course of their businesses.
While it might be desirable under a "normal" financial company bankruptcy to seek maximization of benefits to the Debtors such that creditors be paid as much as possible during recovery, MF Global Inc customers (who are NOT creditors) can currently expect at best a 60% recovery going into mid-December and should be placed first in line until 100% recovery is obtained. Further, from the numerous conflations and generalizations in the paragraphs above that allow, for among other things, payments to non-US affiliates, it is possible that the looting of MF Global customer funds continues to this day. We wonder if this is why the MF Global trustee continually revises upwards the estimated maximum loss of customer funds.
As to exactly how this might be possible, we pointed out as early as November 9 that the Euro debt repo-to-maturity trades were performed by MF Global Inc. with an affiliate (not Goldman or JP Morgan, as was hypothesized in the media), with the affiliate to receive 80% of profits from the transactions. Inasmuch as J. Christopher Flowers and friends were among MF Global Holdings' larges shareholders, it is conceivable that outflows continue to this day to an affiliate of Jon Corzine's good friend.
Given the extension granted by the judge allows these potential shenanigans to continue throughout the end of 2012, it is imperative that immediate disclosure of all trading and intercompany transfers be obtained, especially if they are being conducted to the derogation of the customers.
* * *
MF Global Customer Resources:
Commodity Customer Coalition (7,000 members and growing)
EBatEPJ (website, twitter feed, email: english (at) economicpolicyjournal (dot) com)
* * *
Inteview with James Koutoulas of Typhon Capital Management and the Commodity Customer Coalition
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Pseudo outrage. Committee members will probably get some trading tips even as they're shaking their fists at him.
Some enterprising soul ought to put together a video with clips of the most fake sounding oratory mixed with moans from a really energetic porn sceney. Too bad youtube wouldn't allow for a good cum shot spray for the ending because that'd be perfect.
I think that's only allowed on the elevator for the Page's and not on the floor of the Senate itself. I watch the video feed on C-Span day and night of course just in case....i know you find it exciting to know this. I'll report back to you if i "see something." Indeed..."anything."
Money shot ?
Instead you'll have to end with the footage from Casablanca of Captain Renault announcing that he is shocked, shocked, to discover that people at the casino are gambling.
Congressional hearing supposed to be Dec. 15th. Will we learn anything, will Corzine take the 5th and will it merely be about general blow-hardiness from the Financial Services Committee members?
"Please swipe you're Get Out of Jail Free card before proceeding Mr. Corzine." and then "Thank you, you may now claim the exact opposite of what actually happened is what happened...and that wasn't your fault either. Thank you for playing!"
I expect a Charlie Keating defense, where they turn around and blame the agencies that shut him down for the failure since he didn't have enough "time" to cash in on his scheme.
http://www.wavsource.com/snds_2011-11-20_4767603213998257/movies/blues_bros/wasnt_my_fault.wav
I hope C-Span allows porn on their broadcasts, because this hearing is likely to be nothing more than a big circle jerk. Corzine will plead the 5th (after all, it doesn't seem like he really has any other option, given the scale of his fraud), and the rest of the hearing will be committee members congratulating each other for doing such an outstanding job "stopping" MF Global.
The current legislative framework of the US financial industry encourages this sort of behavior. It rarely, if ever, is punished. So why is anyone surprised that it continues to happen? And while Corzine and MF Global should be made to pay a steep price (I'd like to see lengthy jail sentences), I think the investors should also bear at least some of the blame for being so naive and blind.
YOU DUMBASS -
YOU DO NOT BLAME THE VICTIM OF A CRIME for the CRIME. You blame the CRIMINALS, the AUDITORS and the REGULATORS (including the CME).
What next? Blame the 911 victims for the attack?
while i generally agree with the thesis of not blaming victims for crimes, imo the average u.s. citizen, average u.s. lawmaker, average u.s. journalist, average u.s. cia operative bears significant blame for the 9-11 attacks. as ron paul noted, correctly imo, to bob schieffer, the u.s. and israel (with others) have persecuted the muslim world in myriad ways for over sixty years. that it retaliated is unremarkable. http://www.salon.com/2011/11/24/bob_schieffer_ron_paul_and_journalistic_...
Well, in a way, you are correct. Anyone who pays taxes to a government that pursues our foreign policy is responsible for 9/11. This line of reasoning is nothing new. Henry David Thoreau posited as much in his essay "Civil Disobedience" (first published in 1849).
I'm not the dumb ass here. I didn't have my money at MF Global. But as a taxpayer, I have no doubt that I'll have to pay for other people's fraud and bad judgment. As usual.
I hope the CME is on the hook for every nickle stolen.
They never should have allowed MFG to keep trading anything without the compliance officer and systems in place.
Upon the suggestion that MF Global had a compliance officer, my first thought was that s/he must have been a Goldman retread. The interwebs reveal that she came across from Bear Stearns. http://in.reuters.com/article/2011/11/03/idINIndia-60311120111103. MF Global's 8-K reveals that before Bear, she was at Goldman Sachs. http://www.wikinvest.com/stock/MF_Global_Ltd._(MF)/Filing/8-K/2008/F6215819. Tracy Lowery Whille. Nice job, Trace.
The auditors, PWC, gave MFG a passing grade 6 months before it went under. The Squid might be next....same auditors.
http://www.bloomberg.com/news/2011-11-25/mf-s-lost-cash-makes-you-wonder-about-goldman-commentary-by-jonathan-weil.html
They can't deliver, the greed and leverage has broken the game. Delete positions and heist the digits while the getting is good. Let the sheep eat lawyers fees and maybe fractions of worthless fiat owing.
They're bringing the futures market down because they can and there is absolutely no rule of law and consequences, it's over and the pirates sail away. So far... I'd love to see suits hanging from every lamp post but as of yet it is only just a little dream of mine...
Bye bye CME
this is what i don't understand. if the money is fake and the government just gives it to you anyways...why steal it?
I bet Jon is bragging in some circles about how well this is going.
don't forget james bullard, fed governor, claims the failure of mf global is proof the system works.
http://www.lewrockwell.com/rep2/mf-global-hit.html
so does that mean if the CME is broken that the system is working even better then? How about if O'Hare airport goes bankrupt? "all is well"? "Please remain calm...ALLLL ISSSS WELLLLLLL!!!!"?
:>
?
Its probably "a plan" to destroy the commodity markets (something to keep a lid on "inflation").
Once the commodity markets are destroyed (and especially Gold, Silver and Food futures) then everyone will only invest in Wall Street stocks.
Then Jon will be the supreme government hatchet man...get the pardon...and then they will make Jon the head of the Treasury (after he boots out Timmy).
See and hear William Black and his discussions about how no one got indicted..or questioned.
William Black: Why Nobody Went to Jail During the Credit Crisishttp://www.financialsense.com/financial-sense-newshour/guest-expert/2011/09/14/william-k-black-phd/why-nobody-went-to-jail-during-the-credit-crisis
actually i find the concept of a massive "stealth inflation" that the government refused to report on for political reasons fascinating. under this scenario what's going on in Europe suddenly becomes logical: the government is refusing to report the actual annihilation of living standards as the Western world plunges into a second variation of the Dark Ages...in the meantime the hyper-modern marketplace senses this causing yields of said government debt to explode to 200/300% to compensate for the complete and utter nonsense of the "no inflation" thesis.
Laws are great but if John Corzine was walking down the street in my neighborhood I would punch him in the face. Then before the police showed up I'd tell him to bite the curb and start stomping on his head. I'd make sure to nurse him back to health though. That way everyone else could have a turn.
The way I handle this situation is clearly the best because there isn't much incentive for bankster crooks to write silly legal protective meassures.
Bullish for black markets and more traditional Mafia style organizations. The moral hazard will go parabolic as it is clear that made men like Jon Corzine are untouchable.
Democrat Jon Corzine = friend of Obama. The Repubs may suck but the Dems are pure evil. Harry Reid = 1,000 days without a budget for the USA so they can loot the Treasury.
There is NO difference between the parties. Both are the same party and are just theater to fool the foolish. Let me make this clear: Believing there is a difference is to be a fool. It is like believing it matters if you died from falling 1000 feet or from falling 1001 feet.
On the whole, you're correct.
But try to even imagine a Ron Paul or a Rand Paul among the dumbocrats?
i'd distinguish between ron and rand. the old guy is the one i'm voting for. not that you said it but this is not a dynasty.
It's true that they are two wings of the same Warfare-Welfare Party, but it's not true that they are identical.
What's the difference? Ron Paul is willing to be marginally associated with just one of them. We'll see whether they are willing to acknowledge the kinship, or they treat him as an illegitimate second cousin twice removed.
Early indications are not encouraging.
How is Obama going to run for office with this buzzard shitting on his head every day?
President Hillary?
president ron.
Bah ha ha ha. Finally, the U.S.S.A. is recognized for the kleptocratic, corrupt house of card that it is. No doubt, the death spiral will be much like the U.S.S.R in the early 90's. Got physical, cash, like-minded neighbors, and connections in government? You better.
Since the muslim was installed in 2008 - I knew it was going to be an implosion just like the USSR.
the continuity of the obama (mal)administration with that prior is striking. not to forget that some of the very worst financial regulatory decisions were made in the second clinton administration. altogether a very dark and bipartisan chapter.
"Since the muslim was installed in 2008 - I knew it was going to be an implosion just like the USSR."
Since the CIA tool, Wall Street puppet, teleprompter reading useful idiot was installed in 2008...
I knew it was going to implode just like a Lehman/TARP II...
Corzine is a Jew, go after Jews.
Now, now. Corzine. Blankfein, Geithner and the rest are Ashkenazi, which is not quite the same thing, also most people believe it to be.
We'd be okay if they'd all just stick to playing the piano like Vladimir, instead of running global banking frauds and fiat currency scams.
http://www.youtube.com/watch?v=WpZr_cbYbXo
You're both idiots and trolls. Corzine is ITALIAN and a member of the UNITED CHURCH OF CHRIST, not that any of that really matters.
Sorry, Corzine is not Italian. He's believed to be of Dutch extraction, but we know he's Ashkenazi because (a) he looks it, and (b) he attends the Bilderberg Group meetings. What more do you need?
What does being a muslim have to do with any of this. Not that it matters as all beliefs rooted in mythical beings are as dangerous as believing in the Fed...maybe even more so.
All I have to say is it is tiring seeing the prattling about how many angels are on the head of a pin or whether or not my god is better than yours. Pointless, unproductive, and even dangerous as it keeps people preoccupied with a whole lot of NOTHING instead of doing SOMETHING about our situation.
Just to make a point, I have witnessed two Christians argue themselves blue in the face over whether or not gays should be stoned to death. Each called upon their interpretation of "God" and felt the other's was false. Think about it. You might just be one of those fools.
I have witnessed two Christians argue themselves blue in the face over whether or not gays should be stoned to death.
Yeah, those DA Xians argue over such things AS OPPOSED to Muslims who just go ahead and stone gays to death without arguing over the issue - hey you know it's true, but then mabe you are no fool, but just a bigot.
The God doesn't make any difference in this, its the same God of Issac, Jacob and Abraham for the Jew, Chritian and Muslim. Its really just that Islam teaches its OK to fuck goats. This explains why Obama looks out on America and sees nothing but goats. Well, and big money guys to extract "contributions".
Sheeeit. Go back to school.
I think his religious beliefs and upbringing are completely fair game because THEY DIRECTLY IMPACT HIS POLICY DECISIONS.
This country and it's founding principles are based on Judeo-Christian ethics and values. Islam flies directly in the face of those beliefs.
Churchill had mussies pegged a looong time ago:
How dreadful are the curses which Mohammedanism lays on its votaries! Besides the fanatical frenzy, which is as dangerous in a man as hydrophobia in a dog, there is this fearful fatalistic apathy. The effects are apparent in many countries. Improvident habits, slovenly systems of agriculture, sluggish methods of commerce, and insecurity of property exist wherever the followers of the Prophet rule or live.…A degraded sensualism deprives this life of its grace and refinement; the next of its dignity and sanctity. The fact that in Mohammedan law every woman must belong to some man as his absolute property, either as a child, a wife, or a concubine, must delay the final extinction of slavery until the faith of Islam has ceased to be a great power among men.
Individual Moslems may show splendid qualities ... but the influence of the religion paralyses the social development of those who follow it. No stronger retrograde force exists in the world. Far from being moribund, Mohammedanism is a militant and proselytizing faith. It has already spread throughout Central Africa, raising fearless warriors at every step; and were it not that Christianity is sheltered in the strong arms of science, the science against which it had vainly struggled, the civilisation of modern Europe might fall, as fell the civilisation of ancient Rome.
[The River War, 1899, first edition, Vol. II, pp. 248-50.]
Who cares which god myth he follows?
because unfortunately - we still think in tribal terms, which is slightly larger than staying in our own caves. and that given, because then, our religious beliefs got translated into terrotorial 'countries' which are slightly bigger than our tribal areas. and being a muslim, dear beloved the honorable, most venerable, his supreme potus mr. obama might not have his own countries best interests in his first thoughts, as his real loyalties might appear to be elsewhere. and he might be a bit bitter about it.
not saying this is good or bad. but might appear to some people that way. much as lloyd blankfein is probably more akin to donating charity (not saying this is true - but you can prove me wrong) to some external countries rather than others. funny how this works..
Wow what a bunch of horseshit
Judges are not friends of the little people