by Stanley Haar
As a individual trader and CTA whose accounts are owed several million dollars by MFGI, I would like to express my shock and disappointment with [yesterday's] front page article; I expected better from the WSJ. Your article gives the appearance of having been ghost written by Andrew Levander and/or the JP Morgan legal department. Among the key errors/omissions:
• Client money in segregated bank accounts was not "vaporized"; it was stolen via illegal transfers to support MF's proprietary trading positions and to repay creditors such as JP Morgan. Those transfers are and always were illegal…….even "under rules at the time". Your use of that irrelevant and misleading phrase twice only serves to deflect attention from the criminal acts committed by Corzine, Abelow, Steenkamp and Ferber. Your own article goes on to state that "rules require customer funds to be set aside and kept safe". Even Gary Gensler and Jill Sommers have testified that customer funds needed to be segregated at all times. The failure to do so is a clear violation of the Commodity Exchange Act; "intent" is not an element of this criminal act.
• Although you correctly cite the difficulty in recovering the stolen funds, you fail to explain the main reason for this difficulty: the highly suspicious and irregular way in which the bankruptcies of MFGI and MFGH were implemented. Under a properly executed FCM bankruptcy process, customer segregated funds always have absolute priority over all other creditors. Instead, MFGI was placed under a SIPA liquidation, even though 98% of the accounts were commodity accounts not covered by SIPC protection. Compounding this bizarre step (apparently orchestrated by key general creditors such as JP Morgan and Goldman Sachs without resistance from the CFTC), the assets under the control of MFGH were not frozen and that entity was allowed to continue operating under Chapter 11 bankruptcy rules. This allowed unknown billions in assets to be dumped into the hands of George Soros, JP Morgan and various hedge funds at bargain prices (as reported by your newspaper), thereby locking in realized losses on those positions and moving assets out of the reach of the MFGI trustee.
• The bottom line is that customer funds were stolen twice: first by the illegal looting of segregated accounts by MF management, followed by the fraudulent way in which the bankruptcy was structured so as to circumvent the priority status of customers in the distribution of MF assets. This is the real story and scandal of MF Global, and perhaps one day your paper will decide to cover it.