In all the recent talk of economic gloom and doom, not to mention JP Morgan rehearsing for its role as Federal Reserve and failing miserably, some forgot that Jon Corzine still walks free. That may change soon if James Giddens, trustee for the liquidation of MF Global has his way. In a report filed today, Gidden says: "As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity." He continues: "My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions." So someone was at fault: who? "I have determined there may be valid claims against individuals and entities. In my capacity as Trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others." And specifically from his list of recommendations: "Provide for civil liability for officers and directors in the event of a commodities segregation shortfall." Well, we know there is a shortfall. So... why is Jon Corzine still walking free? Oh wait, Valukas said there were "colorable claims" against Lehman management too. Last we checked Dick Fuld is still out there... somewhere. But generally yes: it just has not been JPMorgan's year so far.
More from the report summary:
CAUSES OF ACTION
The Trustee has concluded that valid claims may be asserted against certain individuals and entities. He will use his efforts to pursue these claims, either through litigation or negotiation, or to support the pursuit of these claims by others to recover customer property in accordance with his goal to return as much customer property as possible. The Trustee expects, in light of progress in negotiations, further consultation with customer representatives, and legal analysis, to reach decisions about commencing most major litigation to recover customer property within 60 days.
The Trustee is working diligently and expeditiously in the pursuit of potential claims:
- DIRECTORS & OFFICERS: The Trustee believes that claims, including claims for breach of fiduciary duty and negligence, may be asserted against former MF Global CEO Jon Corzine, former MF Global CFO Henri Steenkamp, and former MF Global Assistant Treasurer Edith O’Brien, among others. The Trustee is already consulting with commodities’ customers’ class action counsel about actions against officers and directors and other employees, and the Trustee has also communicated with relevant insurers.
- JPMORGAN CHASE: The Trustee is engaged in discussions with JPMorgan Chase (JPM) with respect to transfers that the Trustee believes may be voidable or otherwise recoverable. JPM has cooperated with the Trustee’s investigation, and the Trustee has announced publicly that he is engaged in active discussions with JPM with respect to these matters. In the event these discussions do not result in an agreement, the Trustee, if appropriate, will commence litigation. To date, JPM has returned approximately $89.2 million in customer property and $518.4 million in non-segregated unallocated MF Global Inc. assets, subject to certain reservations of JPM’s security interest in such funds. This sum includes $168.1 million in funds representing the proceeds of excess collateral that JPM held at the commencement of MF Global Inc.’s liquidation, which will be subject to an appropriate allocation.
The report also includes a discussion of the Trustee’s recommendations for legislative, regulatory or other reforms that might help avert similar liquidations in the future, or at least alleviate their consequences:
- Abolish the alternative calculation method and implement a requirement to segregate an amount in excess of 100% of customer funds.
- Eliminate the segregated versus secured distinction in Commodity Futures Trading Commission (CFTC) Regulation 30.7, ensure consistency of customer protection when trading overseas, and monitor compliance abroad closely.
- Create a protection fund for futures and commodities customers under a certain threshold, and implement suitability standards for customers of Futures Commission Merchants (FCMs).
- Provide for civil liability for officers and directors in the event of a commodities segregation shortfall.
- Consider simplifying some CFTC rules for bulk transfers and claims in an FCM liquidation proceeding.
- Enact legislation explicitly authorizing Trustee standing on behalf of customers.
Below is the full 275 findings report (link)