Bruce Krasting's picture

The MF Global story gets more bizarre by the minute. At this point one has to ask if it could become a systemic problem. At first, I did not think so. I’m rethinking that. There is no definitive information as of yet. The CFTC is suggesting that the missing client money is $633mm. It might be larger than that (Zero Hedge Link).

Some thoughts:

I was one of many who tried to stave off the bankruptcy of Drexel Burnham Lambert in 1989. Skadden Arps, (the same law firm who is advising MF today) was involved in the last month as the chess game played out. They were advisers. Their clear advice was to NOT commingle  custody accounts. To commingle funds is potential jail time for any involved. Drexel went down. But client money/assets were returned.

Of course Corzine and all the other seniors at MF knew this. Skadden was giving them the same advice as they gave to DBL 20 years ago. So how can it be that three days after a chapter filing there appears to be a very big hole?

This happened with another big future’s house back in 2005. That was Refco. In that case there were significant client account losses. Of historical interest:

-Phil Bennet, the boss at Refco, went to jail for 12 years.

-Man Group bought what was left of Refco (they were good futures brokers).

-Man became MF Global. Rinse and repeat.

The history is relevant as it is more evidence that Corzine and MF management HAD to know that commingling was the ultimate no-no. It was part of their history.

My guess is that the missing customer cash was grabbed by one (or more) of the big players in the global bond market. MF did not sign off on the cash grab. The banks moved on them and their customer accounts. MF had no say in the matter.

Given Corzine’s relationship with Goldman, I put them high on the list of probable plug pulling bankers. Nomura was a place to go to finance AAA sovereign positions. One of the French or German banks could have been the warehouse for MF’s sovereign exposure. It wouldn’t surprise me if any one of them pulled the plug on the leveraged bets.

It should be noted that all of the big players talk when they are moving on collateral and closing relationships with financial firms.When the SHTF, they act as one.

MF has said that the funding for the sovereign exposure was “locked up” to maturity. That’s complete bullshit. I can tell you from first hand knowledge. When Wall Street is financing positions they always have a MAC (Material Adverse Change) provision that allows them to call the financing. If the debt is not immediately repaid it produces an event of default. That creates a cross default to all other asset positions. When they smell trouble they move first and ask questions later. They always lock up cash.

If you think this sounds far fetched consider what happened at Refco:


Refco’s forex brokerage arm, Refco FX, LLC, was holding over 17,000 retail customer brokerage accounts at the time that Refco declared bankruptcy shortly thereafter. In the bankruptcy proceedings, Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors because of Refco’s failure to segregate its customer accounts from their own general funds, despite telling customers that it had done so.

Most of the broker’s 17,000 customers eventually received little or no compensation.


This is not supposed to happen. FINRA is the watchdog for this. Their words on how “safe” customer accounts are with registered brokers.

In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Even if a firm fails, its customers' assets will be safe.

So much for FINRA.

Where could this go?

I think some drop in confidence by market investors in secondary firms has to happen. Money has to leave those players. With that, will go the flow trading that comes with the accounts. Liquidity across all markets (especially futures) will be affected.

If we go down this road (we will if MF/the Banks actually used/seized clients money) the short-term consequence will be another big ramp up in volatility. Most assets classes will suffer in that environment.

Leveraging of "liquid" assets is a critical component of the global system. The repo markets are already under serious attack. The MF story could take us to a new level.

The absolute craziest outcome would be that we learn that it was Goldman who closed the books and seized the cash last Friday (someone did). It would be even crazier if this leads to a problem that gets out of hand. There’s a decent chance that it plays out along these lines.


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snowball777's picture

I can't help but be reminded of the pool scene from Caddyshack...this will have an analogous effect.

gnomon's picture

"Rule of Law" holds more favor among Conservatives who are an increasingly wavering subset of the Republican Party.  Dems have always been loosey-goosey about the "Rule of Law", particularly in regards to the Constitution.  Nebulous and amorphous ideas of Fairness, Social Justice, and International Law are the favorite boltholes for Dems seeking to get around the "Rule of Law".

Let Red State Conservatives loose on this pack of Wall Street Mongrels and Beltway Banana Republic Wannabes, and we will have a start to ending this debacle and a return to a frugal sanity, adhering to the Rule of Law. 

I am a Man I am Forty's picture

You need advice not to gamble money that is not yours?  You mean you are not supposed to gamble money of your clients that you are supposed to be protecting?  Geez Bruce, how much did you pay for this advice?

BTW and OT, did you work with Jim Dahl?  

LawsofPhysics's picture

Hhmmmm.  Once again these paper-pushing fucknuts are ignoring the rule of law and someone will have to fight to hold all of these executives responsible.  Without giving too much about myself away, my father (a disabled Ait Force Veteran) prosecuted many of these corporate criminals back in the 80's during the savings and loan crisis.  I still remember the federal agents that stayed with us after we recieved several death threats.  Like my father, I still carry a concealed weapon and believe that you should never take anyone's word on anything unless you have known them and thier business practices for a long time.  The fact that so many people blindly follow the advice of a "financial advisor" still baffles me.

Make not mistake folks, these people are criminals through and through.  No way this does not get bloodly from here on out.

It is one thing when a common citizen (serf) is stolen from, it is another thing altogether when those with real power start to steal from one another.

Hedge accordingly.

Fundemental Principles's picture

"......it is another thing altogether when those with real power start to steal from one another."

I strongly agree; Post 2008 it was clear to me that Hank's 860 Billion TARP was pure theft of taxpayer dollars - stealing from the masses ( somewhat in the vein of Stalin: one death is a tragedy, a million deaths is a statistic).

Since that time, another clarity has occurred to me: Things will begin to get real in earnest once they can no longer steal from the masses with ease.  I see now that this has come to pass and that the next domino has tilted;

Whether it's Darwinism economics or something else, the landscape has clearly changed - these fucks have started to eat their own and their true jackal nature is emerging.  At this point the game is afoot and I fall back on Churchill:

"This is not the end.  It may not even be the beginning of the end.  But, it may be the end of the beginning."

That they are beginning to eat their own is a very serious indicator; one not widely discussed.  But that's what's going on.

In ZH parlance: It's On like Donkey Kong 

masterinchancery's picture

As an attorney, I must say it is highly doubtful that banks would even consider seizing customer funds at a securities dealer, for all the reasons you laid out regarding MF.

LawsofPhysics's picture

Bullshit.  It has been done before and was in fact more prevailent during the S&L crisis then most would believe.  In large part because the Feds simply replaced the devalued paper and that was that.  Criminals like this are far more likely to hide behind the facade of a safe institution.  Mainly because they don't have the intellectual ability or integrity to make it on their own in the competitive marketplace.

surfersd's picture

Call me a chump. 20 years running a big wall street energy desk and I get caught with funds at an IB that cleared with Man.

Back in a prior life was offered a golden package from Refco to move operations and turned it down, Phil B gave us the creeps, even though Refco was a good brokerage house.

Traveling last week not paying attention, tried to transfer money Friday AM and it caught frozen. Another account I have run by a buddy managing a small fund through another IB at Man got out and he gave wiring instructions after I did.

Will let you know how it goes. At least I got all of my gold and silver warrants from Comex in my hand.



Dan Duncan's picture

From the Refco website weeks before the bankruptcy:



Hope you get out of this relatively unscathed...but here's what you can expect:

1.  Frozen funds.  [Obviously.]

2.  Quotes to hire an attorney:  Min of $100k retainer.

3.  The CFTC will do nothing for you.  In fact, behind the scenes it will actively work against you.

4.  The Court will declare you to be a mere "unsecured creditor".  As you leave the courtroom, the judge will quickly call you a "scumbag" while in the middle of a cough.  "Cou---scumbag--ghffff".  Then he'll giggle as he high-fives a group of secured-creditor attorneys.

5.  Any attempt to form a class in order to pool resources with other similarly fucked, newly designated "unsecured creditors"-- giving you the opportunity to afford proper representation-- will be laughed out of the courtroom, as the Judge will inform you that it will not even allow you to obtain a list of other customers similarly situated.

6.  The process will play out and big players like Jim Rogers (if he has an account with Man, as he did with Refco) will get paid 95-100% on the dollar.  This will be the case, even though Rogers used MF Global for the exact reasons that you did.

7.  You will become intimately familiar with Article XIV, Section 313(b), SubSection 214 (v) of one of your 12 different Terms and Conditions that you signed upon upon opening an account with MF, as it will be exploited by the law firms representing Bank of America, JPM, etc., etc.

8.  You won't be able to contest a thing....

9.  In 2-3 years, you will get a total of 10-15% in multiple installments.

The End.

moneymutt's picture

man, that's horrible. You're no chump, for anything to work, for people ever to relate with eahcother, we have to trust. If the system punishes you for being warily trusting, it's the system and its leaders that are the chumps.

Graabein's picture

This was very interesting. Thanks for the insight and not least the historical references. I am a bit astounded that banks really can seize client money the way you describe!

LawsofPhysics's picture

Really?  Wow, I am truly surprise at the many responses like yours.  Why do we ignore history?  If you go to the bank and they won't let you withdraw your funds, the have in effect stolen that money from you.  What they do is wait until the currency is devalued and then they allow you to access your funds.  Why in the hell else would people start stuffing money, gold, and silver into mattresses or holes in the ground?


Element's picture

Bankerz gotta eat!

Crocodiles do not eat carrot.

Bankerz ALWAYS eats their client's money ... or else ... another Bank'z clients money.

When has this  E V E R  been otherwise?

It's always been a matter of scale, but not a change of diet.

Don't offer crocodile a carrot, then expect to retain your arm.

It's the nature of the beast.


Zero Govt's picture

 Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors

Customers deposits (money) is customers money. Full Stop. Period. No more prevaricating or fuking weasel nonsense required.

It's common sense. The Law however is not designed to follow common sense or clear title of property. It is designed by crooks (politicians prompted by vested interests) and interprited by appointees/crones (ie. judges) of politicians.

Good article Brucie. I can't wait to hear who (really) pulled the rug from under MF Global but in the interim I hope clients money is returned to clients, their rightful and actual owners

DOT's picture

" The Law "

Now wtf does that mean now ?


AldousHuxley's picture

They need this Texas  family law judge who beat his own daughter to start spanking bank execs instead.



"Go get the belt. The big one. "....it is true. everything is big in Texas. even the spank belt.



LFMayor's picture

oh come on man... even Liza Minelli knows that sometimes it's the only way to get your message across.

That was sarc btw, before someone gets the fuze on their tampon lit.

Mediocritas's picture

I share the view that MF was a hit, an assassination, a planned kill. Was hoping to get some insight here regarding who carried out the hit (GS?) and why (to cover own backside?). Guess it will come out over time.

honestann's picture

You gotta wonder why everyone else doesn't act in concert against the ultimate predator, GoldmanShafts.  They'd all be a lot safer without this utterly craven and untrustworthy diabolical predator stalking the markets... and them.

sasebo's picture

Tell me again - the economy is about what? Producing food, clothing, shelter, transportation, energy. health care, etc?

What does all this bullshit produce? Nothing. It's all malinvestment. And what do you get for malinvestment? A hot poker up your ass. 


LawsofPhysics's picture

Exactly why I welcome a complete crash.  Only then will compensation find its way back to people who can perform services of REAL VALUE.  Fuck these paper-pushing fucknuts.  Anyone who doesn't welcome such a crash knows that their labor isn't worth spit.  This is what JFK really meant when he said that the only thing we have to fear is fear itself.

PulauHantu29's picture

"Nobody Knew Noth'n," eh Bruce?

I find it hard to believe these Mavins did not know or have reason to know millions, if not Billions, were moving in the wrong direction. If I write a check for One Penny over or One Penny under the alarms go off at the Bank.

I cannot except these lame the excuses, Nobody saw this coming" stuff.

However, I am sure none, zippo, zilch, nada of these Big Wigs will see a day in jail.

mberry8870's picture

Bruce, the banks may have done that but then they would be the thiefs not MF. The issue with refco was that the customer's trading FX were not required to be segregated because those contracts were not covered under the CEA, at that time. Actually the customers signed documents that it was their preference to not have the balalnces segregated because they could earn a higher return in a non-seg account and an acknowledgement that the funds in non-seg were not offered the same pratections afforded customers under the CEA. My guess is that Mr. Hubris aka Corzine authorized the transfer to cover house positions under the belief the postion will move his way and he would then "un-rob" the store. The movement of customer funds out of seg and into a house account was not done by some mis-informed clerk. I fully expect the standard democratic fall back; "I am not a crook I am merely incompetent."

Dirtt's picture

The day I heard SquidZine took over at MF Global we shut down the account. Not much was there but that's not the point.

The writing was on the wall. Ex Squid Chief. Ex Jersey Governor. I'd like to say that the 150,000 customers are as easily to blame. EXCEPT many of the 150,000 "clients" had hundreds if not thousands of real clients behind them via pensions etc.

Why WOULDN'T SQuiDZiNe piss away MF Global on EuroTrash Debt?  WHO got paid? 

Why WOULDN'T SQuiDZiNe piss away MF Global using monies in one way shape or form connected to union leadership? Who got paid?

We can't have "teachers, firefighters, police & The Criminal Justice Sector Racket losing their pensions now can we?  Who got paid?

ODIOS DEBT.  If it is not destined to cancellation then the USA is.

MIDTOWN's picture

I made arrangements to transferr an MF account today.

My new futures broker can only transfer my debit at this time. the credit stays with MF.

While MF keeps the cash, the customers keep the margin responsibility.

Ted K's picture

You know how I like to call "Bullshiiiiit!!!" on you Brucey???

I have no quarrels with this post. Especially your calling out of the bastards at FINRA (who are really just a cartel of brokers/dealers)

Bruce, I'm very curious how you think something like this could affect money market funds at retail brokerages??? Can you humor me with response??  I'm guessing it would have to be something bigger than this, right???

Bruce Krasting's picture

Ted, I love you! Always have. I like anyone who reads me, including those that like to razz me.


To your question, MMF have been shrinking for 3 years now. They will continue to do so. It is possible that the business at MF accelerates that process.

I think we have to have a pretty clear understanding on this by Sunday night. This issue is too important to not have a clarification. Should this result in permanent losses for customers it will shake the tree once again. That drop in confidence will be reflected in the MMF numbers.

barliman's picture


Excellent piece, Bruce.

Do you think this situation has been contained? Or is it more like Fukushima in the early days - lots of efforts to "save face" but no one knowing what to do to contain the problem?


Bruce Krasting's picture

Me? I think it is Fukushima. This is a big deal. Look what is happening to Jefferies. We have some contagion happening already.

knukles's picture

Having been around several of the same and similar instances in the past, my curiosity is piqued with respect to two elements with regard to the client segregated accounts.
First, were the clients told that their monies were indeed held in segregation for their full benefit?
And Secondly, the monies so said to be insegregation, were such monies indeed segregated or were such monies instead commingled, clients amongst clients and or clients amongst the firm's.

Do we know the details of the arrangements within such a framework?

MIDTOWN's picture

 The beneficiary of every wire transfer sent by customers was: MF Global Customer Segregated Accounts

Bastiat's picture

It should be noted that all of the big players talk when they are moving on collateral and closing relationships with financial firms.When the SHTF, they act as one.

Not the case with Lehman and LTCM though--they wouldn't play and took advantage of the fact that they were holding the collateral, IIRC.  It was interesting how it shook out for Lehman about 10 years later. 

Flakmeister's picture

Was Bear also one that didn't play in the sand-box properly as well at the time of LTCM??

Bastiat's picture

Flak,  I think you're right; I mixed them up.  Yep, it was Bear.

ManicMechanic's picture

I'm just wondering how many presidetial pardons Obama is going to issue on his way out next year?   Aka... silence is golden no matter how much it cost!

Joebloinvestor's picture

The CME will probably step forward or have a lot to do with making people whole.

It is in their best interest, and we all know where their best interest is.

anynonmous's picture

but Bruce, Arthur Levitt (former SEC boss, advisor to Goldman Sachs and Bloomberg LP board member and regular on BB radio)  presumably sitting in his shorts overlooking Long Island Sound (http://binged.it/uQOhki) was waxing eloquent on Bloomberg Radio first thing Weds morning with sycophant Tom Keene as he explained that  Jon Corzine is  "a good and decent man"


reg54's picture

Look into the articles from July/August about Corzine's connection to the Obama campaign.



Who pulled the plug on Friday? What if it was the Obama campaign?

Who actually DOES manage the Obama campaign money?

GeezerGeek's picture

The article at the businessweek.com link contained an interesting paragraph:

"Corzine’s employment contract is written with a view to future government service. It stipulates that he’ll be paid his $1.5 million retention bonus on a pro rata basis if he leaves to work for any “U.S. federal, state or local government” before March 31, 2014."

Is an inmate in a penitentiary considered an employee? Would Corzine get his retention bonus if he ended up working on a chain gang? Just asking...


solgundy's picture

Wait 'til the MF clients find out that they have now donated to the Obama campaign

Flakmeister's picture

Is cannibalism the only growth option left for PD's?  Is sucking at the Fed's teat the only sure and easy cash to be had?

LawsofPhysics's picture

Yes, now things get interesting as those with power start trying to steal from one another.

Oh yeah, when SNAP fails, cannibalism will be the only growth option for the debt-slaves as well.

LFMayor's picture

you should look to be an early adopter of the Wendigo, be it technology, finances or flesh.  If you wait too late to overcome your mores, your body will be too weak to benefit in time.

vegas's picture

Rinse and repeat. Indeed.

Anybody that trusts US regulators to do anything but watch midget porn is a fool.




Elmer Fudd's picture

"The banks moved on them and their customer accounts. MF had no say in the matter."

I'm fascinated, how exactly does that work?

Widowmaker's picture

It works the same way you think their fraud money is really yours.

It really isn't, and there is a lot Bruce purposefully isn't saying too. MF global is a snake hole of fraud, built to fail, and nothing more. It's a ring of concealment - laundering pit for whom?

Tell the world Bruce, mr. Firsthand.

Tell us about the next bailout on top of the one MF global was the proxy for. Someone is winning big.

London Banker's picture

My guess is that the MF failure will have been orchestrated very similar to Lehman, with the losses allocated to foreign investors - and the UK investors in particular.  The FSA allows institutional UK investors to opt out of segregation requirements, and in particular allows liberal repo and lending of client assets. This makes UK clients a tempting target for some pre-insolvency looting of assets.

With Lehman International, the run up 6 months was used to liquidate customer assets outside the US and stream the revenues to the US entity, so that US creditors all received generous top ups to margin and collateral pre-insolvency and US clients suffered less loss.  The same will be true with MF if the same people were coordinating behind the scenes.