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Round Two Hearings Start, But Feasting on MF Global Continues

EB's picture





 

 

A second round of Hearings on the MF Global failure are scheduled by the Congressional Financial Services Committee on Thursday, February 2nd.  This Committee has the judicial power to call anyone into the hearings.

The stated purpose of the hearing is to “to continue the investigation of the $1.2 billion in missing customer funds during the bankruptcy of MF Global.”  Looking at the lineup of witnesses many wonder how this panel might bring us any closer to discovery of the claimed 1.2 billion missing.  Questions are if these hearings are really to investigate the stealing of customer funds and facilitate recovery, or are instead a political show to call attention to, for example, the problems of the Dodd Frank Act.  Or to beat up on Rating Agencies that operate without any ultimate accountability?

We sincerely hope that the committee is prepared and dedicated enough to seek this opportunity for truth,  justice  and resolution and not for political posturing. The witness panel is as follows:

Panel I

Mr. Michael Roseman, former Global Chief Risk Officer, MF Global Holdings Ltd.

Mr. Michael Stockman, Global Chief Risk Officer, MF Global Holdings Ltd.

Panel II

Mr. Craig Parmelee, Managing Director, Corporate and Government Ratings Division, Standard & Poor’s Rating Services

Mr. Richard Cantor, Chief Credit Officer, Moody’s Investors Service

Mr. James Gellert, President and Chief Executive Officer, Rapid Ratings International, Inc.

Mr Roseman was hired by MF Global in 2008 as Chief Risk Officer to identify risk and keep the company and it’s investors out of trouble.  Doing his job, he challenged the enormous leverage used behind Mr. Corzine’s sovereign debt trade.   A trade recognized very early to have the real potential to blow up the company.  He went so far as to make his case to the board in September 2010.  But then in January 2011, he was informed that he would be replaced by Michael Stockman who was more agreeable to Mr. Corzine. Stockman was at UBS for a number of years leading up to the near meltdown on the bank’s exposure to Credit Default Swaps — which lead the Swiss Government to bail out UBS to the tune of over $59 billion.  As an aside, Mr. Stockman also helped develop a course on “credit crisis analysis and risk management” for Dartmouth’s Tuck School of Business.

While it may be interesting to listen to testimony, we question if either of these two gentleman are in a position to tell us anything new at all about the handling of customer funds and the sudden – as the Wall Street Journal recklessly reports,  “vaporizing” or stealing of 1.2 billion  with “chaotic trading” in those last hours of MF Global, Inc’s, existence.  Roseman was long gone and Stockman worked far from a trading desk.

But perhaps the Committee is lining up the basis for related questioning and not conducting a political show.  We can only hope.

Why we do not have any clarity after so much time

From the very first day of the MF Global Bankruptcy MFG Facts questioned the structure.  Now others, who are perhaps even more informed on the US Bankruptcy code, go so far as to publicly characterize it as “criminal.”    Our regulators and courts applied a bankruptcy process (Chapter 11 and SIPA) to sequester private property into the MF Global estate.  An estate that is now expected to pay hundreds of millions in fees to attorneys and the bankruptcy industry.

Last week MFG Facts published an analysis and report on the still-opaque meeting where it was agreed the SEC and CFTC that the MF Global bankruptcy proceedings would go under Chapter 11 and SIPA.  This report received much attention.  Since then the CFTC has made public statements addressing issues raised not only by MFG Facts but many others as well.

The CFTC tries to answer

Chairman Sommers’ January 27th remarks to the National Association of Wheat Growers were informative and welcome, but did not offer explanation why the CFTC only now finds itself asserting that “commodity customers have an exclusive right to customer property. This includes, without limitation, segregated property, property that was illegally removed from segregation and is still within the debtor’s estate, and property that was illegally removed from segregation and is no longer within in the debtor’s estate, but is clawed-back into the debtor’s estate by the Trustee.”

Sommers continues that “When a BD is also a registered FCM, as MF Global was, there is one dually-registered entity and the entire entity gets placed into liquidation. Because there is one entity, it is not possible to initiate a SIPA liquidation of the BD, and a separate bankruptcy proceeding for the FCM.”

But her comments do not reveal that there is flexibility in the law, and therefore a possibility for a very different bankruptcy structure that would not have made customers creditors to the MF Global estate.  (We will soon see why if you stick with us.)   The structure applied was a choice.  The reasons behind this chosen path are not addressed.  The input and exact role of the CFTC into this choice, other than its agreement, has still not been revealed to the public. Commissioner Sommers full remarks can be found here.

Commissioner O’Malia also speaks out

This subject of the increasingly questionable, and now very messy, bankruptcy proceedings were also addressed by Commissioner O’Malia this week in a speech at NewYork Univesity.   In sum, he states, “All they [customer] can do is to meekly fill out the claims forms presented by the SIPC trustee, all of which are due today. This situation is intolerable and unacceptable.”  In spite of an overall very good speech, the CFTC again takes cover as helpless and hapless, rendering itself a now useless entity behind a SIPA proceeding:

O’Malia states, “Moreover, MF Global was dually registered with the Securities and Exchange Commission (the “SEC”) and the Commission. As a result, SIPC and its trustee have the primary responsibility for conducting the insolvency proceedings. The Commission has been relegated to a supporting role…

And continues, “Of course, DSIO can only review the books and records that they can access. In the U.S. alone, the MF Global insolvency involves two regulators and two trustees. I want to call on all involved to make sure that the Commission has full access to relevant books and records and witnesses. Otherwise, recovery for MF Global customers may be delayed needlessly.”

Nice call, but reality is, the SIPC trustee was given and now has the primary responsibility as the O’Malia states.  Of course it will be delayed needlessly.  That is the structure the CFTC agreed to. And with that, a legal machine will be richly rewarded out of the estate which has commingled customer assets. Trustee Freeh of the Holdings is not aiding the investigation of customer funds stolen out of MF Global.  His responsibility is to liquidate the Holdings and pay its creditors, not return stolen assets to customers of MFGI.  The bankruptcy is framework adopted by the courts allow for such intransigence.  That was the agreed upon choice by Gensler’s CFTC along with the SEC.

And no, in spite of the picture painted by both CFCT Commissioners as a system beyond their control, this bankruptcy did not needed to turn into a feeding fest of the MF Global carcass and its former customers by a platoon of bankruptcy attorneys. (For more on Big Bankruptcy Billers lining up around MF Global, read here)  A strong case could have been made from the first moment to protect and prevent customers from “meekly fill[ing] out the claims forms presented by the SIPC trustee.”

36000+ customers thrown to the billing machine. Who cares what federal laws say?

Readers might ask how can MFG Facts and others counter statements made by CFTC  Commissioners and other authorities who have even testified in Congress that this had to be a Chapter 11 SIPA bankruptcy?  Is it only opinion?

We need only to read the Bankruptcy Basics published by the Federal Courts (pg 31)

In addition, stock and commodity brokers are prohibited from filing under chapter 11 and are restricted to chapter 7. 11 U.S.C. § 109(d).”

But let’s go beyond the cursory basics and review Case Administration (Vol 2, Chapter 7,pages 56-60) published by the United States Trustee Office of the Department of Justice (underlines our own):

The United States Trustee should be aware that section 109(d) prohibits a stockbroker or a commodity broker from filing under chapter 11. See In re SSIW Corp., 7 B.R. 735 (Bankr. S.D.N.Y. 1980); In re CO Petro Marketing Group, Inc., 11 B.R. 546 (B.A.P. 9 Cir. 1981), rev’d in part, 680 F.2d 566 (9 Cir. 1982).

If a broker files a chapter 11 petition, a motion should be made by the United States Trustee to convert the case to chapter 7 or to dismiss it, with specific notice to the SEC and SIPC for the stockbroker and to the CFTC for the commodity broker.

But is MF Global Holdings a Broker?

The question of broker or not is the reason a massive legal machine is now fighting over definitions, as MFGFacts reported last week.

Yet we wonder how this can even be argued as MF Global Holdings presented itself to the public as a broker, has a primary dealer status with the Federal Reserve Bank and on it’s very own bankruptcy petition on October 31st described itself as a great big broker!

____________________

3. Brief description of MF Global’s business:

MF Global, a Delaware corporation, is one of the world’s leading brokers in markets for commodities and listed derivatives, providing access to more than 70 exchanges globally and is a leader by volume on many of the world’s largest derivative exchanges. The company is also an active broker-dealer in markets for commodities, fixed income securities, equities, and foreign exchange.

____________________

Is the Trustee for the Holdings now claiming the filing was wrong?  Is the court expected to believe it?  Apparently so.

Let’s return to the DOJ Bankruptcy guidelines:

 

Because stockbroker and commodity broker cases are very rare and can present unusual issues, the United States Trustee should notify and consult with the Office of the General Counsel immediately upon the filing of such a case. (page 56) 

 

The United States Trustee should, if possible, appoint a trustee with experience in commodity broker liquidation, and should encourage the trustee to retain counsel and other professionals with related experience.  (page 57)

Here we have it:  What does, indeed, increasingly appear to be a “fraudulent” application of bankruptcy structure to MF Global.

1.) A nontransparent decision making process that within a few short hours rushed MF Global into bankruptcy filing.

2.) A filing made with no reported and required notification and consultation with the Department of Justice US Trustee Office.

3.) No apparent input at all by CFTC Legal council.

4.) As court records show no effort to appoint a trustee with experience in commodity broker liquidation, but instead a SIPC insider who is also the trustee for Lehman Brothers but with no experience at all in the commodities industry

5.) And finally (for now) a trustee of the Holdings who has never worked as a trustee, but instead is well connected to Washington (former FBI Director) and a financial industry insider as a former board member of MBNC as we see here.

A series of Department of Justice guidelines under the US Bankruptcy Reform Act have been disregarded for the feeding fest.  Where is the DOJ?

[Today's] hearing by the Congressional Financial Services Committee:

Against this background we have Congressional Hearing with the stated intent to investigate the claimed $1.2 billion in missing customer funds. We all know where the funds are and what likely happened.  But the reality is until the shield of a bankruptcy structure is pierced to enable a true investigation with intent to rapidly return stolen funds, the funds will never be returned.  The hearings will go on and we will hear about Dodd Frank and rating agency lack of information and many “I do not recalls’” while  the bankruptcy industry lavishly feeds itself from the estate filled with “stolen” customer assets.

The members of the sub committees holding this are:

Randy Neugebauer, TX, Chairman

Michael G. Fitzpatrick, PA, Vice Chairman

Peter T. King, NY

Michele Bachmann, MN

Stevan Pearce, NM

Bill Posey, FL

Nan A. S. Hayworth, NY

James B. Renacci, OH

Francisco “Quico” Canseco, TX

Stephen Lee Fincher, TN

Michael E. Capuano, MA, Ranking Member

Stephen F. Lynch, MA

Maxine Waters, CA

Joe Baca, CA

Brad Miller, NC

Keith Ellison, MN

James A. Himes, CT

John C. Carney, Jr., DE

 

 


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Thu, 02/02/2012 - 18:16 | Link to Comment sidkof
sidkof's picture

my buddy's step-sister makes $68/hour on the internet. She has been without work for 8 months but last month her paycheck was $7255 just working on the internet for a few hours. Go to this web site and read more.. LazyCash9.com

Thu, 02/02/2012 - 17:08 | Link to Comment Whiner
Whiner's picture

Kerozine is out right now bundling 100s of $1000s for Obummer's campaign. What? You peon ignoramuses think Hopey Clown is gonna call Holder and ask him to step up the heat on one of his best collectors? He's too busy denying knowledge of his own Fast and Furious crimes. His home is on the market. Maybe Chicagoland is squeezing him w a pardon promise. Romney won't prosecute him either. Get out of your margin accounts before The Morgue rehypothecates your dough, Fools!

I am Whiner and I approve this message.

Thu, 02/02/2012 - 17:07 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

You gotta love the "framing" of this whole thing - for instance, the MF Global customer funds are "missing."  Like Amelia Earhardt missing. Like vanished into thin air, X-Files style.  Gee, where did all that money go? Well, no sense probing mysteries as deep as this! Might as well just shrug and give up. That doggone money is gone like it had wings! And our Barney Fife regulators, google-eyed at the chance to go into  a lucrative private practice through the endless revolving door, say Golly gee what coulda happened to it Sheriff?

Rule of law is a farce with these guys. Criminals both in and outside the government. The Founding Fathers are wondering what is taking us all so long to do what they did. Of course they didn't have Kim Kardashian and American Idol.  We'd still be under British rule if we had. 

Thu, 02/02/2012 - 17:09 | Link to Comment Kasperfx
Kasperfx's picture

Here we go again, another dog and pony show to get people believing congress is doing somthing about this theft., big waist of time and our money. Here I have a sure fire way to learn were the funds are hidden! Just use the new National Defense Authorization Act to incarcerate Corzine until he come clean. O boy wait one min, that new National Defense Authorization Act law excludes government officials, right?


 

 

Thu, 02/02/2012 - 16:22 | Link to Comment apberusdisvet
apberusdisvet's picture

Knowing full well that a false flag attack to be attributed Iran is imminent, I wouldn't mind if some doped up CIA/FBI induced Persians kidnapped Corzine and beheaded him on UTube.

Thu, 02/02/2012 - 15:49 | Link to Comment Sutton
Sutton's picture

Dickhead Giddens says MF was not a brokerage.

You've been warned. Your money is not safe in any account.

Thu, 02/02/2012 - 14:44 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Questions are if these hearings are really to investigate the stealing of customer funds and facilitate recovery, or are instead a political show to call attention to, for example, the problems of the Dodd Frank Act. Or to beat up on Rating Agencies that operate without any ultimate accountability?

Rule # 1 EB.

Congressional hearings are NEVER about exposing the truth. In fact they are all about covering up the lies, often with new lies.

Rule # 2 EB.

If something shocking is exposed in a Congressional hearing it is a given it is actually covering up something even more shocking.

Thu, 02/02/2012 - 14:59 | Link to Comment nostromo17
nostromo17's picture

Which is why those with blatant conflicts of interest against "The People" need to be run out of office and be replaced.

That can be done if everyone were not so jaded they just embrace defeat in their jaded knowledge of 'that's how it is."

The power structure like the finances is a deck of cards waiting to collapse. Vote against the incumbents!

Thu, 02/02/2012 - 15:53 | Link to Comment nostromo17
nostromo17's picture

 

Randy Neugebauer ON THE financial services Committee, Chairman of the Subcommittee on Oversight and Investigations --most funded by those he regulates the farmers are number two in this conflict of interest. 
http://republicans.financialservices.house.gov/, http://randy.house.gov/
http://maplight.org/us-congress/legislator/526-robert-randy-neugebauer From the latter below:
Top  Interests Funding

Interest

Contributions

Banks and Credit

$172,029

Insurance

$115,100

Real Estate

$101,525

Securities & Investment

$78,100

Crop Production & Basic Processing

$50,750

Livestock

$49,649

 


 

Thu, 02/02/2012 - 14:14 | Link to Comment Atlantis Consigliore
Atlantis Consigliore's picture

http://youtu.be/zKJzRNwe5dg

 

Get down on the MF Global Hearings....JUNGLE BOOGIE  clients,  get down.....

 

LOL  a farce,  love the back and front flip from the regulators 10th in line...LOL

 

priceless.  LOL 

Thu, 02/02/2012 - 14:11 | Link to Comment Zero Govt
Zero Govt's picture

What a bloody farce ..fraud

MF Global has not only broken every rule of a broker but the 'Trustee' has pissed on every rule for its liquidation (go Long red noses and size 19 clown boots, this farcical clown show has legs)

and where are the (3) Regulators who are supposed to stop crashes, and then after them jail the crooks?? ...oh there they are, sitting on and showing contempt for the rules and whistling fuking Dixie

...the goalposts wide open yet again and after the event they're still off the pitch in the bar getting pissed ..Regulators are easily the most worthless bunch of crones since crones were invented

NY Gangster Land ..you won't see 'justice' here, it's been a crooks playground for 100 rotten years

Thu, 02/02/2012 - 14:16 | Link to Comment Atlantis Consigliore
Atlantis Consigliore's picture

they re dancing JUNGLE BOOGIE sucka,  seg funds,  LOL....

 

see da judge first in line with the shoes,  the regulator backflip is priceless!!!

 

http://youtu.be/zKJzRNwe5dg

Thu, 02/02/2012 - 14:21 | Link to Comment Zero Govt
Zero Govt's picture

the 'Trustee' is a jester ...in addition to his huge red nose, vast size 19 clown boots and Ronald McDonald outfit they must have to paint a straight face on him every day to make this moron look remotely serious 

 

Thu, 02/02/2012 - 14:02 | Link to Comment Gold Dog
Gold Dog's picture

"Get off my ass, I stole that money fair and square!"- Jon Corzine

Thu, 02/02/2012 - 14:00 | Link to Comment tony bonn
tony bonn's picture

these hearings are just like the sham warren commission, hsca, 9/11 commission - dog and pony shows to cover up the truth and to prevent legal investigations into crime....

Thu, 02/02/2012 - 14:29 | Link to Comment Zero Govt
Zero Govt's picture

Yep, a smokescreen, a whitewash, a sham from start to finish

Whatdaya expect in Financial Crimes Central, New York?

Nobody has been prosecuted in this snake pit for 100 years

...and American Regulators stick their fat noses in every other countries business like these worthless corrupt crones have anything to teach the world about financial integrity

Thu, 02/02/2012 - 13:56 | Link to Comment connda
connda's picture

The senate and government regulators are going to obfuscate this by adding as much complexity to this fiasco as they can. 

Remember, this is just a giant game of "Hide the Pickle" with the MFG customers being the primary recipants of the pickle hiding.

This is what happens when a government become corrupt from the inside out.  And corrupt it is!

Thu, 02/02/2012 - 13:48 | Link to Comment Widowmaker
Widowmaker's picture

Why the fuck are laws and rules touted, attributed or even mentioned at all?  Can Maxine even spell MF?

Any such attempt is complete garbage, everyone knows money talks and shit walks in the justice system of Americuh.

Romney/Corzine 2012

Thu, 02/02/2012 - 13:40 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

Silver just got wacked,at the same time silver 1 year lease rate just dropped to zero....

Is this a coincidence....????

Can I lease silver for a year for ZERO.......????

Silver seems to be "MANAGED " to stay under $34 for now.

Thu, 02/02/2012 - 14:20 | Link to Comment SilverRhino
SilverRhino's picture

I think your threshold for WHACKED is a little too thin.  1% drop is not a whacking.  

10% drop.  Yeah that is taking a hit.  

 

Thu, 02/02/2012 - 13:05 | Link to Comment NotApplicable
NotApplicable's picture

There's a lot of damn words here. All to try and undermine a white-wash operation with logic. An effort which only gives credence to the complexity of their "problems." They wind, you unwind, both serving to fill the air with noise that would otherwise be better served by the clear signal of "This is a criminal white-wash job!"

This is a battle that cannot be won through direct engagement, such as congressional hearings. The only path is to undermine the legitimacy of the "regulatory" structure and all of the criminals hiding within it.

Thu, 02/02/2012 - 15:55 | Link to Comment nostromo17
nostromo17's picture

True

Thu, 02/02/2012 - 13:04 | Link to Comment nostromo17
nostromo17's picture

Why NOT  a Special Prosecutor?

Not to mention how about clarifying JP Morgan's activities as lender and clearer where there seems to be clear conflicts of interests which could have impacted the clearing process for MF Global leading up to the bankruptcy such that the 'lost' funds wound up in Europe not properly in the U.S. and therefore out of reach.

There is the good possibility as well the rules were followed by the book and it is in the interests of the investigating parties to obscure that fact since they all created the rules and the outcome is at least an embarrasment--or at worst they would like the rules to stay the same, for further conflict of interest reastons.

Bets on --these topics won't be addressed.

How many so called Congressional Investigators are beholden to the banking industry and serve on banking committees? They should not be investigators due to conflicts of interest.

As regulations tighten everwhere but "The City" Britain, the Great Financial Regulation LOOPHOLE, the vested interests will do all they can to hide the fact that 'The City' cannot be a loophole if one expects financial regulation to be effective and consistent without Multi-National banks usings whatever bank center is convenient to break or circumvent the law. So the investigation falls short of the regulatory war between the U.S. and Britain over banking regulations because of vested banking interests supported by Congressional and Regulatory bodies CFTC, SEC etc etc have conflicts of interest which prevent executing the law.

The masses conveniently remain ignorant of the real topics and the facts because they are buried under the morass of bullshit.

Thu, 02/02/2012 - 13:46 | Link to Comment donsluck
donsluck's picture

I, a member of the ignorant public, have one take-away lesson. Get physical. There is no other recourse.

Do NOT follow this link or you will be banned from the site!