A Spurious Motion on Behalf of the MF Global Trustee
Submitted by Andrew Abraham of MyInvestorsPlace.com
The court received a motion today by lawyers of Hughes Hubbard and Reed, opposing an official commodity customer and broker committee.
In a strangely constructed argument, attorneys for the Trustee open with that within “Within hours of his appointment on October 31, 2011, and against a backdrop of shortfalls in segregated funds and records that are far from wholly reliable, the Trustee moved and has already affected the transfer of three million open positions associated with over 14,500 commodity customer accounts.”
But this is NOT what happened. Customer funds were immediately frozen in violation of segregation of customer funds. Neither customers nor customer brokers were given instruction by the Trustees, other than a single number where positions may be liquidated. The orders given by the Trustee to demonstrated a grievious lack of understanding of the industry in which MFGI operated. What happened is this: the following week (not in a few days) those positions that were not liquidated, were then liquidated under order of the Trustee, and new positions at a new basis were opened. (Often positions were not liquidated because there was limited possibility as all customer and broker order terminals were frozen, even for liquidation only.) Then only percentage of supporting margin and the new positions were received by new brokers. No accounts were moved. To represent that is intentionally misleading to the public. Instead we had a disruptive and costly procedure with no basis in the established workings of futures markets and account management.
In this motion the attorneys state the Trustee seeks cooperation and assistance from SIPC, the CFTC and CME group. (In other words, butt out customers!) SPIC is neither organized nor qualified to assist in return of segregated funds of futures accounts. Both the CFTC and CME have grossly failed their responsibilities to the industry and customers of the industry.
The final arguments ends with these points among others:
That there Is No Legal Basis for the Formation of a Commodity Customer or any Other Official Committee in a SIPA Proceeding. Yes, but SIPA “Act” was not written for commodity accounts. So why is this even a SIPA Proceeding?
That there has never been a creditors’ committee or a customer committee appointed in a SIPA proceeding in the statute’s forty-year history. Is that the logic of law? Just because…? There has also never been a bankruptcy of an FCM where customer funds wound up in the hands of a Trustee in the entire 150 history of organized futures trading in the US:
The rest of the argument is based on SIPA, which was not enacted by Congress on behalf of Commodity Customer protection. The motion before the court also states, “The Movants seem to believe that the Trustee’s administration of the fund of commodity customer property requires the appointment of a committee solely to protect the interest of commodity customers.” Yes, indeed, based on the bizarre administration so far. The “Movants” (customers who have made a move to the court) represent over a billion in customer segregated funds that the Trustee is treating as part of the “estate” of MF Global.
The rest of the motion is self congratulatory praise and banter. The Honorable Judge Glenn has shown himself not to tolerate sloppiness, time wasters and fools. It will be interesting to see how this motion is received by the court.
UPDATE from MFGFacts.com:
$1.2 Billion now might be old news…Forbes came out with $1.7 Billion missing from client accounts.
Yesterday we smelled something dirty rising out of the spin machine with the Trustee statement to the press that the “shortfall” is larger than previously reported. In true form, hysterical media reported the “apparent shortfall” as a fact and succeeded in increasing the fear and confusion around the case. The APCO World Wide Spin Meister magic worked with our entire culpable press yesterday as we were bombarded with screaming headlines of more missing money.
Yet when reading the statement NO WHERE do we read that more funds are missing. Only that it could be, or is apparent.
Why the dishonest spin?
Trustee Giddens is suddenly under increasing public pressure to release as much of the client assets as possible. And he is resisting not only that, but even customer representation in the courts. Why should the Trustee be concerned about the size of the MF Global estate? And what is his problem with all these pesky customers?
1.) The largest unsecured creditors are JP Morgan and other banks. The larger the estate, the more they will have returned. Motions to the court indicate that Trustee has their interests in mind. After all, JP Morgan is one of the largest clients of the Trustee’s firm, Hughes Howard & Reed. Both the Trustee and JP Morgan are fighting hard to put your assets into the estate of MF Global.
That also explains the Trustee’s moaning that he will wind up empty if he returns MF Global client assets, and that client funds amounts to “virtually all of the assets currently under the Trustee control.” What he is saying by crying poor is indirectly pleading with the court not to allow that to happen!
2.) There are a number of motions to the court on behalf of customers. If customers are given standing in the courts, this risks the ongoing gig to allow a continued theft of customer assets. Why continued theft? If there really was commingling or dipping into client funds, and if the courts allow client funds to go into the estate for creditors, it assures both creditors such as JP Morgan and Bank of America as well as the Trustee, a greater return. In essence the Trustee is attempting to commingle customer accounts with the MF Global estate!
For those interested a parsing of the spin on the claim: