This page has been archived and commenting is disabled.

MF Global Customer Funds Were Not "Vaporized" - Stanley Haar Takes WSJ to Task

Submitted by EB on 01/31/2012 15:42 -0400

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.

- advertisements -

Tue, 01/31/2012 - 16:21 | 2113869 knukles

It is reprehensible that the regulators are seemingly at this point abandoning the folks whose accounts were for lack of a better term, raided.
Having been a participant on and off in the futures markets for some 35+ years several points come to mind. First, it used to be held as a underlying premise by all participants that should an unlikely even such as these come to the fore, the exchange's clearing houses were going to make good. So why the liquidation etc., of open contracts?

Second, why pursue a brokerage type bankruptcy thereby placing the liability to the lender before the account holders that under alternate liquidation options would have been reversed where the client would come first in the waterfall of priorities?

Third. And possibly most importantly....
Should any monies have been wired from MFG's or client accounts to any entity outside the four corners of MFG, the Fed has a copy of the wire transfer instructions. Thus, it is impossible for the funds to have "evaporated" or been "vaporized" as has been maintained in several publications, of late.
Impossible not to know where the money went. When, to whom, what amounts, etc.
It may be an entirely different question altogether of recovery if the funds meandered their litlle way to the City of London and were re-hypothicated multiple times over.... but just who the players are is known.
Let's not kid one another.

So, what's the Investment Implication? Looking at it from the stand point of an offshore entity....
I now observe 2 clear instances where the Rule of Law/Justice in the United States is not properly being pursued.
The first was the abrogation of bondholders rights with GM and Chrysler, by the very same folks (Federal Government) whose sworn duty was to uphold such.
The second is MF Global. Now, I ask you.... Place yourself as an offshore entity with opportunities to invest with equal perspective returns in on the one hand, the UK, Australia or New Zealand or on the other, in the US.
Which you gonna choose now, this time?
Given all 4 have the same tradition of English Common law as a basis for securing the rights of personal property and contracts, the US is gonna fall to dead fucking last (as the last of both low net and gross in the event, DFL)
Why? Not becasue of a lack of the the genesis of the laws of the lands in question, but because here, they are not being properly enforced. Regardless of what anybody might say, that's what it looks like, pure, clean and simple, 100%, 24/7/365.
Whether appearance or fact is of no difference. Naught, none, doesn't fucking matter. So, what currencies gonna benefit? Oz, NZ, Canada.
What's gonna loose? US
What else gonna get the drippings off the side of the plate? Gold. But as Europe started to really come apart, it made sense to retreat to that good olde any port in the storm, return of my money was the most important and retreat back to the US
Lemme just say this....
A betcha....
Once the "worst" is past for Europe.... and the US dollar looses its refuge sheen, then watch out Oz, NZ and Loonie.... and Gold are gonna skyrocket.

Tue, 01/31/2012 - 19:55 | 2114785 Chuck Walla

And the Bankruptcy judge can order funds returned to the estate if they were sent as an unfair preference. Now if the judge is on on the deal...

Tue, 01/31/2012 - 19:41 | 2114750 Amish Hacker

You make some good points, Knukles. One thing I'm still wondering about is the role that CME has played here. The fact that they didn't step up and cover for one of their clearing members (MFG) when they defaulted raises a huge red flag.

The CME website (http://www.cmegroup.com/clearing/cme-clearing-overview/safeguards.html) emphasizes the financial safeguard measures they have in place, more than $11 billion that could be called upon in the extremely unlikely event of a member default. Yet when one of their members does default, all they can say is that the clients' money has "vaporised."

That kind of thing doesn't exactly inspire confidence, and of course, confidence is the one absolutely indispensable element in the current system.

Wed, 02/01/2012 - 00:36 | 2115521 Isotope

Then again, maybe they don't have $11 billion.

Hard to "call upon" it if you don't have it.

Tue, 01/31/2012 - 19:14 | 2114656 spinone

if we don't have well regulated and transparent markets in the US, our finaicial industry is a dead man walking.

What do we have left? Nothing. Not finance, not manufacturing, not real estate.

Tue, 01/31/2012 - 17:30 | 2114294 falun bong

There are already planty of fiduciaries around the world who are instructing managers to pull assets from markets where this kind of theft is possible. Any investor who has not written to the CFTC ombudsman and their Congressman on this gets what they deserve. Yeah, yeah, "what good would it do?". A million emails would have an impact believe me. And if that doesn't work go find an OWS rally and join it. You are about to be robbed and you better take it seriously.

I moved to Australia when Bush was re-appointed the second time, and yes you can believe that assets are finding their way here, AUD at $106 during a slump in trade? Now that we have Black Bush in the US, and his co-criminal Holder, all bets are off.

You might add Hong Kong to your list of markets with a strong rule of law and regulatory and asset protection. Yes THAT Hong Kong...in COMMUNIST CHINA.

Wed, 02/01/2012 - 05:23 | 2115743 connda

I wrote to my Congressmen and got a mealy-mouthed response that I filtered through Google Translate to translate their comments from Governmenteez to plain English:

To paraphrase the translations:

Dear Stupid Constituent:

We already know what happened, but because we are bought and paid for via the various SuperPACs, we are not going to do a damn thing other than attempt to make the problem disappear along with the "vaporized" $1.2B in segregated funds. Get over it.

With Syrupy Sincerity,

The Most Freak'n Honorable ________________________________

Trying to communicate with your elected officials is a lost cause, right along with the US financial system.

Tue, 01/31/2012 - 16:06 | 2113817 redpill