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More Details on How MF Global Customers Got Thrown Under the Bus

EB's picture





 

Submitted by MFGFacts.com 

 

Last week we witnessed lawyers dueling in the bankruptcy court on the details of exactly what code of law supports customer priority in liquidation of the parts of MF Global Holdings,  and gosh!….is  the Holdings is even a broker?  Why are lawyers debating these questions at this late date?

 

First we’ll cover what started the fight and then move onto the genesis of why it has come to this so far into the proceedings.  Do stick with the story as it might sound like legal minutiae, but does have everything to do with recovery of customer funds.

 

It started with the Sapere Wealth Management, LLC assertions (among others) that the MF Global estate must be administered under 17 C.F.R paragraph 190.  Remember paragraph 190 as
you will hear more about this in the next weeks.  Applying this clause of the bankruptcy code to the liquidation of MF Global Holdings would assure customer priority in the liquidation of MFGH, which is also claimed to have taken customer assets out of
MFGI, the commodity brokerage unit of the Holdings company, MFGH — before and after the bankruptcy.

 

That all customer property as defined in paragraph 190 of the code, must be returned to commodity customers free and clear of other claims is also supported by others parties, including the CFTC.  The CFTC, however, also asserts that existing principles of law are available to ensure this, but first the court needs to make “antecedent determinations.”  In other words, the CFTC legal team is playing the adult and indicating that we already have the laws on the books to deal with this once the court figures out what laws it wants to use.

 

So why is the question if MFGH is even a broker so important?  Again, the key paragraph 190, which legally secures customer priority and distributions can only be applied to a brokerage  Chapter 7 bankruptcy, which is used for brokerage bankruptcies, but was not used for MFGH, which is the holding company of MFGI.  MFGH was filed as a Chapter 11 bankruptcy.  This Bankruptcy Code is used for non-broker entities, seeking re-organization.

 

Also, and to use the words of the Sapere plea to the court, “A decision by the court that 17 C.F.R §190 applied to MFGH’s estate can, among other things, obviate the need for titan law firms representing MFGH and MFGI, respectively, to engage in battles with one another funded by “other people’s money,” i.e., at substantial costs to the estates of MFGH and MFGI.

 

The ability to use many millions of customer funds locked in the estate to pay trustees and their “titan” law firms representing MFGH and MFGI  is possible because the bankruptcy was filed as a Chapter 11 for the Holdings and Chapter 11 SIPC filing for MFGI, the commodity brokerage, and not under Chapter 7 for both.

 

As regular readers know, from the start of this sorry saga, MFGFacts.com has focused on the questions around why a Chapter 11 SIPC bankruptcy with almost non-existent securities accounts when neither SIPC nor Chapter 11 address brokerage liquidations.  Additionally, Chapter 11 is the choice when a restructuring is planed, which is not so with MFGH.

 

A Breaking Investigative Report

 

Fortunately, these question are now receiving greater scrutiny in the industry press as we read in this investigation published last week by Mark Melin of Opalesque Futures Intelligence who contacted MFGFacts.com while conducting his investigation, Sold Out: How A Private Meeting Between Regulators Gave Away MF Global Investor Protections.  In short, as Melin reports, “Deciding upon a Securities industry SIPA liquidation process for an FCM over the Commodity Exchange Act (CEA) liquidation and section 7 of the US Bankruptcy Code was a legal maneuver with far reaching consequences for customers with segregated funds and property with custodial banks. The selected SIPA liquidation does not recognize fund segregation or futures industry account regulations. The process considerably favors creditors.”

 

In other words, when the SEC threw the liquidation process to SIPC under for a Chapter 11 securities liquidation, and with the CFTC’s immediate agreement (under the conflicted Chairman Gensler who had not yet to recuse himself  from MF Global issues), a framework of law was chosen where customers were — for the very first time ever — made creditors and their assets thrown into the entire MF Global estate.   Many say what!  And the industry is now asking how?

 

According to the report, the speculation is this: Robert Cook, SEC Director of Division and Trading and Markets is said to have been the lead regulator at the key meeting, the details of which are still not public. “Before joining the SEC, Mr. Cook was a partner at the powerful Washington D.C. law firm of Cleary Gottlieb Steen & Hamilton LLP, which represents JP Morgan, among other clients,”  Melin reported.  We all know that JP Morgan is the largest creditor to MF Global Holdings.  Readers may reach their own conclusions about that.  Yet, making the liquidation of MF Global Holdings and its parts a Chapter 11 and SIPC bankruptcy, set the stage for expensive dueling among lawyers over the fact if MF Global is even a broker or not. This also and — most importantly — tremendously enhanced the recovery position for non-customer creditors over all customers.

 

The CFTC Warned in the 1980s of Potential for Abuse and Problems when Bankruptcy Codes Conflict with a Duel Registered Entity

 

As Melin shares, that the CFTC – to the agency’s great credit — recognized and dealt with this problem:  Citing the exemplary record in the futures industry in the event of bankruptcies, former CFTC Director of the CFTC Division of Trading, Andrea Corcoran writes in a January 1993 issue of  Futures International Law Letter  “As early as 1980, however, concerns were expressed about the ability to retain this record in the event of the bankruptcy of a dually-licensed firm – that is, a firm registered as both a futures commission merchant (FCM) and a securities broker-dealer.”

 

To rectify this, the CFTC then drafted rules we find under then now famous Part 190 where Corcoran writes,  “In the final rules, the Commission noted that Section 7(b) of SIPA (read Securities Investors Protection Act) …proved that a trustee in a SIPA liquidation shall be subject to the same duties as a trustee in a commodity broker bankruptcy under Subchapter IV of Chapter 7 of the Code.”

 

The CFTC was well prepared for a MF Global-like event. Against this background, and as Melin also reports, the choice of a Chapter 11 SIPC bankruptcy code for the liquidation of a futures broker, makes Chairman’s Genslers “give away” even more baffling.  We’d call it a throw away and ask if Chairman Gensler invited a single CFTC attorney into that early hour meeting before agreeing to file MFGI under MFGH as a Chapter 11 SIPC bankruptcy?  Regardless, with that decision the fate was sealed.  And not only were customers and the industry severely damaged, but there was a complete disregard of the decades of work, preparation and public service by the many professionals in the CFTC to which Chairman Gensler was entrusted.

 

And now we have the spectacle of “titanic” lawyers in one of the largest bankruptcies ever arguing if an entity is a broker or not.

*  *  *

 

See also:

Stanley Haar makes the case on Fox news on Vimeo.

 


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Wed, 01/25/2012 - 21:51 | Link to Comment Silversinner
Silversinner's picture

Think Mf global was a testcase  to see the reaction

of society to outright looting of their money.

So far the test has been very succesfull,because

no client has blown Corzine's brain out.

So many financial black holes has been filled with

trillions of dollars,why not this very small one

with all the negative publicity surrounding it??

 

 

Wed, 01/25/2012 - 20:14 | Link to Comment Gold Dog
Gold Dog's picture

"The law is a idiot and a ass!"- Puddinhead Wilson

A friend got burned and his accountant doesn't know how to treat the loss tax-wise.....fuckers!

Dog

Wed, 01/25/2012 - 19:51 | Link to Comment Coldfire
Coldfire's picture

I doubt Corzine will survive this.

Wed, 01/25/2012 - 18:36 | Link to Comment Zero Govt
Zero Govt's picture

"And now we have the spectacle of “titanic” lawyers in one of the largest bankruptcies ever arguing if an entity is a broker or not."

Yes i can imagine the law firms chuckling to each other in private telephone conversations on how to extend the 'fight' over a patently obvious issue to further wrack up fees and fleece all parties

It is crystal clear MF'ing Global was a Chapter 7 brokerage not a Chapter 11 securities firm... but the Law (incuding regulatory authorities) turns common sense on its arse because the Law eminates from societies cheating thieving elite (parasites)

If anybody is not 100% sure the Judicial and Legal systems are a complete farce wrapped in systemic corruption just watch the MF'ing Global case ...which is already bloated way beyond a rotten joke from the starting bell 

Wed, 01/25/2012 - 17:55 | Link to Comment Gromit
Gromit's picture

¨The law is what the nobles do.¨  F. Kafka.

Wed, 01/25/2012 - 18:45 | Link to Comment SAT 800
SAT 800's picture

Cheese, Gromit, it's all a lovely bit of Cheese!  It's too depressing, I'm off to the local for a pint. Cheers.

Wed, 01/25/2012 - 20:45 | Link to Comment Gromit
Gromit's picture

It´s all a state of mind really, realistic expectations etc.  I´m stuck in Montevideo tonight, wishing I was back in Buenos Aires.

But a good night´s sleep will do me the world of good.

Check it out at www.argentinaprivate.com

More fun that a man is supposed to have (at least in the ¨developed¨ world.)

Wed, 01/25/2012 - 17:45 | Link to Comment loveyajimbo
loveyajimbo's picture

Seeing that loud mouth fag Celente get creamed was worth the price of admission!  Talk about a literal "White Shoe Boy"!!

Wed, 01/25/2012 - 18:41 | Link to Comment Zero Govt
Zero Govt's picture

far, far better Celentes loud (accurate) mouth than the quiet insidious rotting stink of NY political, regulatory, corporate, Judicial and legal corruption

GFY arsewipe

Wed, 01/25/2012 - 17:41 | Link to Comment SillySalesmanQu...
SillySalesmanQuestion's picture

It was'nt me...nooooooooooo.That is someone who looks and sounds just like me, forged my signature, occupied my office, used my phone, co-mingled the customer accounts, stole their gold and silver...they even knew the combination of my safe that was shipped to Jamie Diamond..nooooo, that was'nt me.

 

Jon Corzine

Wed, 01/25/2012 - 17:30 | Link to Comment honestann
honestann's picture

ignore.  accidental double click.

Wed, 01/25/2012 - 17:30 | Link to Comment honestann
honestann's picture

Figures.  This is why Gensler has been repeating so often and forcefully that he recused himself... because he did so AFTER sealing the fate of the owners of those accounts at MFG.  This whole scenario is just absolute, complete, TOTAL criminality.  No slightly honest or sane human would claim that the funds in those accounts belong to the owners of those accounts, and therefore cannot in any way shape or form be treated as anything but belonging to those owners.  This is pure blatant criminality by the Gensler and everyone involved in the federal government of the USSA.

Wed, 01/25/2012 - 20:21 | Link to Comment Sunshine n Lollipops
Sunshine n Lollipops's picture

Blatant is right, ann. That seems to be the current theme of gov't treachery. In-yer-face-whaddya-gonna-do-about-it arrogance. It's like their intent is to keep kicking sand in our faces until we rise up in revolt, at which point they can move on to the final phase of the plan. It's gone way beyond normal gov't intrusion and criminality to a level of untouchable hubris. They're adding pressures to a situation that's in dire need of relief. They're pushing us, goading us toward  . . . . . something.

Thu, 01/26/2012 - 14:53 | Link to Comment honestann
honestann's picture

I'm convinced (for no particular reason other than it fits their MO), that they have something in mind for 20121221 (the end of the mayan calendar).  Maybe they're raising the level of "in-your-face" at a rate they figure has to cause armed revolution before that date... so they can mark the formal end to all honesty, ethics, liberty, justice and individualism once and for all on that date.  A fake self-fulfilling prophesy sorta thing.

Wed, 01/25/2012 - 16:16 | Link to Comment Dermasolarapate...
Dermasolarapaterraphatrima's picture

MFG customers are sophisitcated and should have known whom they were dealing with. People like Bill Fleckenstein surprise me...I thought he held only commodities he could safely hold in his possession or safe deposit box/vault.

This is what happens when you "entrust" one of these scoundrels with your money in many cases.

Itchy fingers know no bounds.

Wed, 01/25/2012 - 21:51 | Link to Comment Buck Johnson
Buck Johnson's picture

You know a system is done when the criminals start feeding off of each other.  They where sophisticated, but the issue here is that MF Global and the govt. coluded with each other to get Corzines neck (for right now) out of a noose.  To save their friends, they ran roughshod over established law. 

Wed, 01/25/2012 - 17:32 | Link to Comment honestann
honestann's picture

And people who blame victims know no bounds of contrived rationalization.

Wed, 01/25/2012 - 15:43 | Link to Comment MrBoompi
MrBoompi's picture

Crony capitalism at work again.  None of our money is safe if you think about it.  Even the money in my savings or checking account is probably lent out every night so my bank can make a few extra dollars for themselves.  And what would happen if there is an overnight "run"?  I'm sure the FDIC would be right there making sure my ATM card works.

We have another 5-6 years of Obama to look forward to.  How sweet for us.  The other options are worse anyway.

Our government just doesn't care for us anymore.  We're just worker ants who are available for easy pocket picking.  And that's the real SOTU.

Wed, 01/25/2012 - 15:31 | Link to Comment orangedrinkandchips
orangedrinkandchips's picture

I just made a bet with my buddy, who will tape it and put it on youtube right after it is done, but, I made the bet I will blow my head off if MFG customers win this legal battle.....

 

I am that sure they will lose no matter what that I will take my life if I am wrong....

 

check it on youtube....doubt it gets there....

Fri, 01/27/2012 - 14:57 | Link to Comment mkkby
mkkby's picture

If you're gonna die, at least take a few bankers with you.

Wed, 01/25/2012 - 22:27 | Link to Comment Ness.
Ness.'s picture

I'm hoping you win your bet.

 

After you win... 

 

How about you throw on some fake antlers, run thru the trees and I'll snap a broadhead thru your chest... you're buddy can tape that?  

 

 

 

Wed, 01/25/2012 - 16:10 | Link to Comment skink
skink's picture

Rather than off yourself...better to take Corine out...apparently our government won't do it.

Wed, 01/25/2012 - 17:33 | Link to Comment honestann
honestann's picture

Yeah, no kidding.  But try to find a way to take out Conzine and Gensler at the same time.

Wed, 01/25/2012 - 15:36 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

In other words, when the SEC threw the liquidation process to SIPC

It started with the Sapere Wealth Management, LLC assertions (among others) that the MF Global estate must be administered under 17 C.F.R paragraph 190.  Remember paragraph 190 as

from those 2 pastes, it may have "started" at a slumber part for auditors, but after the party and the kids went home, the SEC decided which janitorial service to hire

here's a paste where the author writes about "creditors":  The selected SIPA liquidation does not recognize fund segregation or futures industry account regulations. The process considerably favors creditors.”

obviously the fix is in.  we knew this almost two months agodecent summary, but nothing really new that i haven't seen before and no mention of moving accounts overseas (did they?) and what was rehypothecated in the US and thru GBrit. so that is pretty weak, but maybe a "secret"  or something "MFGFacts.cum" has recieved "legal advice" not to mention

SLEWIE WILL MENTION IT, OK?????

however, i woyuld think that if you are gonna mention "creditors getting in line before customers" ya just might wanna look at whether the customers' assets were pledged in ways which are INCoNSISTENT with fiduciary laws and guidelines and or regulations governing commodity traders who were simply that:  commodity traders

we can go hybrid with commodity traders and landscape contractors, too, prob, but the bond traders and speculations on the EUR and sovDebt were either hypothecating the custoimers' commodity accounts to do this, or they weren't

if so, and if the accounts had been "legally" and lawfully hypothecated, then the banksters who were "creditors" are entitled to their collateral, are they not?

if not legal, then perhaps someone committed a...(wait for it!)...crime!  ta da!

any chance we could this clarified before Labor Day?

we know everyone would be justly fearful of offending anyone in the goobermint or banking or the CME, especially with the truth

at least slewie knows that, and this author might be a real fuking pussy, eh? 

if i can ask these questions, why doesn't tyler, before he publishes this horseshit? 

say! that smells like coffee, doesn't it?

Wed, 01/25/2012 - 16:57 | Link to Comment GoinFawr
GoinFawr's picture

Tylers rely on you as much as you rely on them Slewie. Excellent observation though.

Wed, 01/25/2012 - 17:17 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

well, thxz, G_F!

when i posted, i erroneously thought that this essay had appeared "below the line", so i questioned tyler's overview.  my bad.  that was inappropriate

i have no similar beef w/"EB" who is/was just circulating info m/l uncritically, w/out one word, except to accurately describe the article, which is fine.  sorry EB

again, legal advice is legal advice, most probably, as far as wonderiong and guessing is concerned

oops!  i had one too many windows open and mistook where i was "situated" on zH, here

Wed, 01/25/2012 - 17:53 | Link to Comment GoinFawr
GoinFawr's picture

The way I see it:

Even if legal prestidigitation rules the day (as usual) and it does turn out that technically there was "no crime committed", that doesn't necessarily mean that what happened was righteous and shouldn't be culpable. (Or wasn't, not too long ago).

No matter how you slice it if I pay for a pizza and the delivery guy has his car repossessed before he gets it to my door, it can hardly be considered my responsibility to make his creditors whole.

Wed, 01/25/2012 - 19:21 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

true, but i'm evaluating this from the bankster angle.  the BK they are (imo) 'mistakenly' steered into by the SEC give theMogrue, let's say, the right to claim its collateral before the account holders possibly b/c the accounts had been re-hypothecated

according to my inderstanding, even to do this thru theCity is not necessarily illegal

i "think" that sophisticated customers can and should strictly control their accounts and how they hold "open" trades with any broker, in any market

people don't read the boilerplate;  they do not undertand the terms of their account, but tend to ass-u-me "everything is on the up'n'up" so "i don't really hafta read and understand the LEGAL aspect of the account.  what could possible go wrong?"

well, it depends on what that prospectus says doesn't it?  and what the rules are and the laws for how these "brokers" can hold things and use "your account" depending on how you elect to structure the agreement and hold things.  when this first broke, halloween - nov 5, say, there was zH and tyler explaining that hedge funds negotiate the (re-) collateralization parametes w/ the broker so that this doesn't "happen" to them!

in stocks, if you hold your open purchases in the house account or "broker's name", the stocks can be handled differently by the broker.  borrowed for shorting, let's say.  so you buy and the broker arranges to lend yer stock for shorting.  legal.  written.  he may do so.  you hold those stock more segregated and the broker does not have that option.  you tell him to send you the stock certificates, and now you possess the stocks.  but most peeps don't do this

so i think there is a spectrum of broker possibilities, depending on how you instruct him/her

people may be screwed by re-hypothecation and screaming mad, but i have yet to see any customer claim that he read the prospectus, understood the account terms, and they were violated.  here's my contract and prospectus and account agreement and it says right here this isn't legal.  maybe the banksters who lobbied for these statutes and BK strategies know more about it than the customers the SEC & CFTC are "captured" by the bank.  maybe?  L0L!!!

but i would wager that a heluva lotta peeps read that prospectus in early Nov and legally completed instructions & covenants to protect themselves from their "friendly" broker

the fact that a customer doesn't know the prospectus and his brokers "rights" around this account and what "can happen" with it doesn't mean the broker is confused or in violation of a damned thing

if you account terms allow him to (re-) pledge your account as collateral and gamble w/ the money and he does so, it is irrelevant whether he wins the bet or loses the whole company.  he has done nothing wrong, but he knows almost all his clients just sign and fund the account know zer0 past that.  they may not really even grasp the ramifications of different types of "orders" as tyler has pointed out, in detail w/ horror stories of orders getting "filled" by HF trading bots who can operate within the bid-ask spread so fast that if you don't know how to design limit orders/all-or-none to match the "HF 'illiquidity' of the issue in question" you are gonna get yer pocket picked by those "closer to the market" than you are

corzine and the squid and the morgue and the SEC and CFTC and the chairsatan know how this works.  some of us "retailers" are learning more now, too.  i had no idea how the crimex worked a year ago.  now i would say that i'm in at least the 95th %ile and i still don't know shit, really!  L0L!!!

Wed, 01/25/2012 - 20:42 | Link to Comment GoinFawr
GoinFawr's picture

The more we find out the less we know.

'struth slewie; gotta read the fine print before you sign anything; people need to be aware what they are getting themselves into, gotcha. But c'mon, there have to be limits. Eg. everytime you update a piece of software do you have the agreement looked over by a lawyer, or even read the whole blathering thing yourself? Technically it's your responsibility, but we all know that if everybody did that that is all we would all be doing during our waking hours. Contracts that combine this fact with trust to prey on people's tendency to take the easiest path may not be technically fraudulent, but they are definitely breaking the spirit of the law.

I mean, just try  to find an agreement or contract these days that doesn't have something like "...may alter terms and conditions without notice...",  and often it's worth more than the benefits of the understanding to have those words removed.

 I get it though: buyer beware. Proving intent to deceive is incredibly difficult once all the i's are dotted and the t's are crossed.

For entertainment purposes only, in my humble opinion if you're an investor demand your share certificates. Commodities/alt currencies: keep the actual somewhere you can go fondle it.

Wed, 01/25/2012 - 20:53 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

i've had this happen with bank accounts!  here's the envelope w/ the boiler plate!  call my guy at the bank:  what;s this about?

what is it slewie?

wrong question, chris!  it is the letter yer fuking bank sent me!

well, there's nothing here about it. 

that's better!

well, maybe it hasn't been entered yet

why don't i bring it down and we can make a few calls and ruin somebody's day?  you're not too busy for me RU?

are you kidding?  what's it say?

i'll be down there in 10 minutes and you fuking tell me ok? 

oh, shit!

you said it!

MF Global Holdings Ltd - MarketsWiki, A Commonwealth of Market Knowledge

this goes well with this piece, imo

Wed, 01/25/2012 - 20:17 | Link to Comment disabledvet
disabledvet's picture

good back and forth...but if there's a serial number and the bar of gold that's because "it's not yours phucker." it's really that simple. you all can spew all the crapola you want but "property is property"...and this is stealing. the fact that Wall Street is doing is a HIGH CRIME actually. The fact that Gensler is robbing Fleckenstein blind is rather odd. Maybe they should have a debate on Kudlow and Co? "how's free market capitalism treatin' you guys these days?" would be my question. and then i'd....stand back cuz "ideally they'd come to blows and start beating the crap out of each other."

Wed, 01/25/2012 - 21:32 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

i've researched the filings on various big corps and i'm always amazed at the "dirt" and dirty laundry.  US steel.  BAC.  schwab. goodyear.  tosco. valero. many others

lawsuits, labor investigations, customer complaints, warranty (fight club), injury/prod liability, environmental spill, corporate harassment, holishitoli & WTF, too.  three-ring hardball

so MF is no prize!  but neither do they win hands-down, and gensler is right outa the cartoons!  but there were signs.  tyler was, like,  weeks or a month ahead of the BK saying "watch out! for MFGlobal!"  trading losses, earnings disappointments, and possible liquidity problems and capital problems were discussed here on zH before the BK, as i recall

too bad one or two of celente's zH trolls didn't tell him what tyler had warned, eh?  but 00brien & co were pretty robotic themselves, with the spamming attacks coupled with the god blesses.  i've followed celente, myself!  but on zH, i just wondered wtf and finally just went ape-shit about the level of trolling and spamming, but i have no evidence g.c. had anything to do with it.  was he ignorant of zH?  i dunno.  did he read the prospectus?  has anybody even asked him?  how much can you "save" by taking crimex delivery on 100 ounces?  you take delivery of the bar(s) they hafta be re-assayed to go back into the crimex system, don't they?  why not buy gold eagles or maples or kruggers? gonna save a few thou$$?  

it doesn't concern me, and it apparently makes sense to him, but i do not understand his choices and preferences

here is a guy who was involved in political campaigns as a young man.  in chicago, too, i think.  why not buy coins w/ a credit card? i know a couple who bought a house with two credit cards!  we worked in RE together.  the charges went thru,  he signed the slips, and they got the keys!  late 80's, small home on 2-3 acres!  knowing charles, he's still kiting the checks for the payments!

Wed, 01/25/2012 - 15:23 | Link to Comment non_anon
non_anon's picture

connect the dots, goldman sachs rules the world

Wed, 01/25/2012 - 16:21 | Link to Comment covert
covert's picture

no, no, the Ownders of the central banks rules the world.

http://expose2.wordpress.com

 

Wed, 01/25/2012 - 20:12 | Link to Comment non_anon
non_anon's picture

lord Blankfein is doing god's work

Wed, 01/25/2012 - 15:13 | Link to Comment Dermasolarapate...
Dermasolarapaterraphatrima's picture

Nice to see this go to the Supreme Court where not many bankruptcy cases wind up. The legal costs for customers to get what seems to already belong to them will be enormous. If they win they just get what they should have gotten Day 1, i.e., their money back.

Anyone know if the "loser" has to pay the "winner's" legal fees?

Wed, 01/25/2012 - 19:26 | Link to Comment Rainman
Rainman's picture

Chrysler bondholders couldn't wait to get to the Supreme Court either. SLAM . Door shuts. GOODBYE.

Wed, 01/25/2012 - 13:42 | Link to Comment csmith
csmith's picture

Seems simple enough. JPM et al made a calculation that screwing MF Global customers was worth it, so they pressured the referees to call it the "right" way.

Wed, 01/25/2012 - 14:01 | Link to Comment GoinFawr
GoinFawr's picture

It may very well have been an 'us or them' situation.  I  wonder if Miss Gradenko is still ok?

Wed, 01/25/2012 - 13:24 | Link to Comment Joebloinvestor
Joebloinvestor's picture

Gensler is a LYING PRICK who needs to be investigated, charged and prosecuted.

Wed, 01/25/2012 - 16:18 | Link to Comment lotsoffun
lotsoffun's picture

it is so unfortunate (i mean for me to feel the need to go ethnic) - but the fact is. (look at demographics and who is placed where) gensler is a lying j-prick.  why are so many of them j's?  i might be one also.  seriously.  this is disproportunate.  i'm ok with a million down votes.  but really.  am i dreaming?

 

 

Wed, 01/25/2012 - 12:46 | Link to Comment stant
stant's picture

let the hft robots rehypocate each other

Wed, 01/25/2012 - 12:43 | Link to Comment anonnn
anonnn's picture

But... 

This excerpt* [my hilites] may apply:

What was this [[[2005]]] ammendment? The ammendment exempted repos (and hypothecated and re-hypothecated assets) and a whole range of derivatives from the automatic stay. It also allowed lower quality assets to qualify for the exemptions.

Which means,

The special bankruptcy treatment given repos and derivatives means that repo lenders and parties to derivative contracts can keep the collateral if their trading partner becomes insolvent. This exempts them from the "automatic stay" rule in bankruptcy, which prohibits most creditors from trying to collect ahead of others.

Or as the official report from the US Financial Crisis Inquirey Commission said,

under a 2005 amendment to the bankruptcy laws, derivatives counterparties were given the advantage over other creditors of being able to immediately terminate their contracts and seize collateral at the time of bankruptcy. (p. 48)

So when a bank goes bankrupt, BEFORE even the most senior bond holders, the repo lenders and derivatives traders can remove, or keep all the assets pledged to them.

This amendment which was touted as necessary to reduce systemic risk in financial bankruptcies also allowed a whole range of far riskier assets to be used, making them too immune from the automatic stay in the event of bankruptcy. Which meant traders flocked to a market where risky assets would be traded and used as collateral without apparent risk to the lender. The size of the repo market hugely increased and riskier assets were gladly accepted as collateral because traders saw that if the person they had lent to went down they could get your money back before anyone else and no one could stop them.

It also did one other thing. Because the repo and derivatives traders ran no risk – they could get their money out of a failing bank before anyone else, it meant they had no reason at all to try to stop a bank from going under. Quite the opposite.

All other creditors – bond holders – risk losing some of their money in a bankruptcy. So they have a reason to want to avoid bankruptcy of a trading partner. Not so the repo and derivatives partners. They would now be best served by looting the company – perfectly legally – as soon as trouble seemed likely. In fact the repo and derivatives traders could push a bank that owed them money over into bankruptcy when it most suited them as creditors. When, for example, they might be in need of a bit of cash themselves to meet a few pressing creditors of their own.

The collapse of both Bear Stearns, Lehman Brothers and AIG were all directly because repo and derivatives partners of those instituions suddenly stoppped trading and

‘looted’ them instead.

 

* Read whole explanation at

 

 

http://www.golemxiv.co.uk/2011/12/plan-b-how-to-loot-nations-and-their-banks-legally/  

 

Wed, 01/25/2012 - 13:48 | Link to Comment EB
EB's picture

This article explodes the claim that exemption of derivatives from automatic averts systemic risk--quite the opposite.  Also provides a good historical perspective.

http://www.richmondfed.org/conferences_and_events/research/2011/pdf/bankruptcy_workshop_2011_edwards_paper.pdf

Wed, 01/25/2012 - 12:30 | Link to Comment Eric L. Prentis
Eric L. Prentis's picture

This is plain stealing of customers’ accounts. If the government lets this stand, they are all criminals.

Wed, 01/25/2012 - 13:47 | Link to Comment rayduh4life
rayduh4life's picture

When was the G NOT a gang of criminals?

Wed, 01/25/2012 - 16:16 | Link to Comment lotsoffun
lotsoffun's picture

in my lifetime, it seems that there is no difference between the mafia and the cia, (or mossad for that matter).  which one has better pr and jurisdiction.  infact - i think the mafia has a better code of honor than the cia.  they have a code of honor.  does the cia?  but - the cia has more power, bigger jurisdiction.

 

Wed, 01/25/2012 - 12:20 | Link to Comment Georgesblog
Georgesblog's picture

I have to wonder at what point, seeing that these law firms are trying to prevent recovery of funds by investors, do they step over the line, into obstruction. With the compromising connections to outside parties, such as JP Morgan, I can see that a law firm could be an accessory after the fact, to embezzlement. Wouldn't that be nice, if that smoking gun evidence turned up?

http://georgesblogforum.wordpress.com/

Wed, 01/25/2012 - 12:46 | Link to Comment MachoMan
MachoMan's picture

they can't even get foreclosure mills whacked after the robosigning mess...  good luck with that (aside from the fact that the people you're trying to prosecute are aware of the law and ensure that there is no evidence to prove your case, have general immunity for simply performing their roles as advocates, and are going to be tried by a member of the bar who is unlikely to turn on his colleague). 

What you're talking about happens...  virtually never, even when there was some semblance of the rule of law.  Essentially what would be necessary is for there to be a recorded conversation whereby client tells attorney, unequivocally, I am going to break the law (objectively) and I need you to help me break the law (objectively)...  what we're dealing with here is more of an area of the law in dispute...  an issue of first impression if you will...  where it would be difficult, if not impossible, to "break" the law (they're actually in the process of making it).

The better practice is to ensure the easy representation money is not around (e.g. the trust fund) and the lawyers will go away...  moral hazard and all...

Wed, 01/25/2012 - 17:35 | Link to Comment Oracle of Kypseli
Oracle of Kypseli's picture

Case and point. I was involved in arbitration in the world arbitration court in London where I discovered a letter from the opposition’s legal team which was clear evidence of manipulating and interfering with witnesses. I presented a copy to the lead legal counsel in our team which would have won our claim, and the attorney on the other side would have lost his license plus god knows what else.

But....after consulting with their NY head offices attorneys on our side, refused to burn the guy. Code of silence?

 

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