MF Global Brokerage Can Probe, Not Share Results
(Corrects spelling of company name in 14th paragraph.)
Officers and directors of MF Global Inc., the bankrupt brokerage that former Goldman Sachs Group Inc. (GS) co-chief executive Jon Corzine quit today, will be subpoenaed by a liquidator in a probe of possible misconduct related to customer accounts.
U.S. Bankruptcy court judge Martin Glenn said at a hearing today that the brokerage trustee, James W. Giddens, can share documents and depositions with the Securities and Exchange Commission and the Commodity Futures Trading Commission. The trustee must probe management’s possible involvement without interference from the parent company, Glenn said.
“There have already been serious allegations of misconduct,” Glenn said, citing company lawyers who told the SEC on Oct. 31 that there was a significant shortfall in its collateral for segregated accounts.
Giddens said in a statement today he will “closely examine” the company’s accounts at JPMorgan Chase & Co. (JPM), a custodian for the brokerage, that allegedly contain missing money from MF Global. He said he knew of accounts at the bank and will try to “gain a full accounting” of them and other assets of MF Global, refraining from “putting an exact number on the apparent shortfall” until more facts are known, he said.
“Whether management was involved is clearly a proper subject for investigation, and the trustee must be able to investigate without interference from any party of interest,” Glenn said at the hearing.
MF Global’s commodity customer funds have a shortfall of $633 million, or about 11.6 percent, out of a segregated fund requirement of about $5.4 billion, according to the CFTC.
Asking Glenn to approve the subpoenas yesterday, Giddens said he needed to find out swiftly if fraud or misconduct led to the bankruptcy and what lawsuits he might bring to recover customers’ money.
The subpoenas grant the authority to demand documents and question the brokerage firm’s officers, directors, lenders and trading partners, according to the trustee’s court filing.
“In order for the trustee timely and efficiently to conduct a comprehensive investigation and fulfill his fiduciary and statutory duties, it is imperative that the trustee gain immediate and complete access to information,” he said in the filing.
At today’s hearing, the trustee’s lawyer, James Kobak, said, “It isn’t appropriate for other parties to be looking over our shoulder as we do this work.”
The parent had asked for the right to get contemporaneous copies of documents and sit in on oral interviews.
Meanwhile, the trustee said CME Group Inc., which runs a futures exchange, and other exchanges are making progress in helping to transfer “significant numbers” of customers’ commodity accounts to other firms. The trustee’s team will be working to help complete the move of bulk accounts and will try to transfer individual accounts next week, he said.
Giddens froze 150,000 customer accounts on Oct. 31, including 50,000 commodity accounts that are being transferred as CME and other exchanges match them with brokers, he has said.
CME has said the segregated MF Global account positions will move to two or more of five clearing members, ABN Amro Chicago Clearing, ADM Investor Services, Dorman Trading, FC Stone, R.J. O’Brien and Rosenthal Collins Group.
Giddens said he also will accept offers from brokerage firms for about 450 customer securities accounts.
MF Global, which was run until today by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for Chapter 11 bankruptcy Oct. 31 after a $6.3 billion bet on the bonds of some of Europe’s most indebted nations prompted regulator concerns and a credit rating downgrade. Giddens is overseeing a wind-down of the brokerage under the Securities Investor Protection Act.
The trustee’s authority extends to anyone with relevant information about the company, including financial counterparties to its transactions. MF Global’s lenders include JPMorgan Chase & Co., as agent to a $1.2 billion loan and a $300 million loan to its brokerage, and Deutsche Bank AG. Jefferies Group Inc. underwrote the company’s $325 million bond offering in August.
Corzine, who joined MF Holdings in March 2010, is also an operating partner at J.C. Flowers & Co., an affiliate of one of MF Global’s largest shareholders. Corzine’s resignation today was voluntary, and Corzine, 64, won’t seek severance pay, according to an e-mailed statement.
Giddens said Corzine’s departure wouldn’t impede an orderly liquidation of customer assets and transfer of accounts that is in progress. Giddens said the company’s offices in New York and Chicago were being “secured” for forensic accountants as the probe began.
Other officers at the company include Bradley Abelow, president and chief operating officer since Sept. 2010. Abelow, former chief of staff to Corzine during his tenure as New Jersey governor, oversees day-to-day operating and is directly responsible for risk, according to court papers. The company’s Chief Financial Officer since April 2011, Henri Steenkamp, was formerly its chief accounting officer and global controller since 2006. Before that, he was with PricewaterhouseCoopers, MF Global’s accountant.
Regulators are also probing the segregation of MF Global’s assets; the Commodity Future Trading Commission has already subpoenaed PricewaterhouseCoopers seeking information about $633 million missing from customer accounts, a person briefed in the matter told Bloomberg yesterday.
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