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CME Chairman Terry Duffy tells the Senate that Jon Corzine was aware that customer accounts were being illegally tapped for MF Global collateral - Dec. 13, 2011.
"So, were MF Global customers up against a stacked deck from the beginning? When MF Global Holdings attorney Kenneth Ziman went to court the day after the firm declared Chapter 11 bankruptcy, he appeared in front of Judge Martin Glenn, whom he had worked with previously at a law firm. The judge asked his former colleague: “I’ve read a number of stories that deal with alleged shortfalls in customer property. Is that only in the registered broker-dealer?” Ziman answered, “All funds are accounted for, and I’m talking about the broker-dealer.” With that, Judge Glenn said, “Okay.”
No one, including regulators in attendence, disputed this misstatement or outright lie, and from then on, MF Global Inc. brokerage customers were on their own."
I'm still not sure or understand how it was "illegal" to use customer funds. This is sanctioned by the Fed.
Under the U.S. Federal Reserve Board's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client's liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.
The problem is there are no such limits in the UK so they can pretty much do anything within the UK subsidiary. My understanding was they lent the customer funds to their UK arm who used these customer funds to collateralize the European sovereign debt bet.
What we see here is another example of poor regulation where a firm can easily manipulate the rules by using offshore subs to exploit legal loopholes.
Unless I'm missing something obvious it doesn't appear this issue is being addressed as per this thread from the CTFC. The CTFC should be approaching the Fed and getting this issue addressed asap.
Chairman Gary Gensler put out a press release today announcing a series of reforms designed to afford customers greater protections in the futures industry. It does not appear retail forex has been included in these reforms but we'll learn more in …
The prb is that these are/were segregated funds. According to MF Global annual report and according to the rules of the Clearing house there has to be up-to-the minute accurate accounting of all funds and all clients accounts by day's end (settlement). These are futures markets. MG Global fraudulently falsified the accounting records and 18.6 (?) Billion is gone. That's steee ling.
Also I'm not sure if your SEC rule is for stocks or futures but there are also Future exchange rules that were not followed. The reason he isn't in jail is that he has powerful connections, was a congressman, worked with GS, and the SEC won't touch him with his connections. The judge for the bankruptcy is a buddy of his defense lawyer.
This is a game and the regulators, lawyers and judges are all on the same side. - not the investors.
The CFTC has won a consent order against MF Global requiring it to pay $1.212 billion in restitution to customers and a further $100 million civil penalty:
*MF GLOBAL TO PAY $1.2 BLN RESTITUTION, $100M PENALTY
*CFTC:PENALTY TO BE PAID AFTER MF FULLY PAYS CUSTOMERS/CREDITORS
*CFTC:LITIGATION CONTINUES VS CORZINE,O'BRIEN,MF GLOBAL HOLDINGS
*CFTC: MF GLOBAL ADMITS TO ALLEGATIONS OF LIABILITY IN ORDER
The big question is - of course - where is the money coming from?