BIRDS OF A FEATHER FLOCK TOGETHER!
FYI: Jon Corzine is a former Chairman and CEO of Goldman Sachs Group Inc., served as a former DEMOCRATIC US Senator representing New Jersey from 2001 to 2006 and served as former New Jersey DEMOCRATIC Governor from 2006 to 2010. Jon Corzine became Chairman and CEO of MF Global Inc. in March 2010. MF Global Inc. filed for bankruptcy protection in October 2011.
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The Wall Street Journal
written by Delvin Barrett and Victoria McGrane
Tuesday November 1, 2011
WASHINGTON—The Federal Bureau of Investigation plans to investigate MF Global Holdings Ltd. in the wake of its bankruptcy filing and questions about a possible shortfall in client funds, a person familiar with the matter said Tuesday.
The person said FBI officials have decided to examine the matter to see if money is in fact missing and if so, whether that constitutes a possible crime. The decision marks a preliminary step in what could become a larger, full-blown criminal probe.
MF Global filed for Chapter 11 bankruptcy protection Monday, the biggest failure of a securities firm since Lehman Brothers Holdings Inc. filed for Chapter 11 in September 2008
The questions surrounding a possible shortfall in client funds comes amid mixed messages about whether such a shortfall exists. Regulators and financial exchanges have cited a shortfall. A lawyer for MF Global at a Tuesday hearing in bankruptcy court said, "To the best knowledge of management, there is no shortfall" in customer accounts.
During a break in Tuesday's bankruptcy-court hearing, Bradley Abelow, MF Global's president and operations chief, declined to comment on reports of the diversion of customer funds.
MF Global admitted to federal regulators that money was missing from customer accounts, according to a federal official who said under law companies aren't supposed to end the day with any shortfall in customer accounts.
The Wall Street brokerage acknowledged the shortfall in a phone call early Monday morning amid mounting questions from regulators as they went through the firm's books, while trying to facilitate a sale of the firm to Interactive Brokers Group Inc., the official said.
It still isn't known to regulators if any shortfall is the result of money being deliberately diverted by the company, the official said. Regulators don't know where the customer funds went, who may have directed the move or how widespread the practice was.
The Commodity Futures Trading Commission is looking into what happened, including whether MF Global had a continuing problem with handling customer funds or if executives diverted funds as the company's financial situation deteriorated and grew more desperate, the official said.
To protect customers in the event of this type of failure, firms like MF Global are legally required to keep customer funds separated by account and walled off from the firm's own funds.
If a broker fails, separate accounts make it easier to transfer customers' futures positions and funds to another broker.
Separately, MF Global hired restructuring adviser FTI Consulting Inc. "to assist the debtor in developing a plan," an MF Global lawyer said in court Tuesday. FTI provides restructuring advice to distressed companies, helping them manage cash and other operations and sometimes filling interim executive roles.
The inquiries come as the chief executive officer of futures-exchange operator CME Group Inc. said Tuesday that a mismatch in MF Global's books, centered on how it handled billions in customer funds, was still being investigated after CME and other exchanges on Monday took emergency action to bar the firm and its clients from doing further business.
CME Group said that exchange staff and regulators were still trying to get a handle on the collapse of MF Global. "CME has determined that MF Global is not in compliance with [Commodity Futures Trading Commission] and CME customer segregation requirements," said Craig Donohue, chief executive of CME, on a conference call discussing third-quarter results for the world's biggest futures exchange operator.
Currently, Mr. Donohue said, officials are "unable to determine the size or scope of the failure."
The comments deepen questions around the recordkeeping of MF Global, one of the biggest players on derivatives exchanges around the world.
That customer funds aren't where they're supposed to be is not a good sign, said Dan Waldman, an attorney at Arnold & Porter and a former CFTC general counsel.
"If a broker is dipping into the [segregated] funds to cover other expenses, that's a problem," said Mr. Waldman, who has no affiliation with the case.
If account irregularities at MF Global were a one-time problem, regulators might have had a hard time detecting the issue, Mr. Waldman added. But an ongoing problem that went undetected would raise questions about the current regulatory system.
"Obviously when customers are at risk and when the system doesn't work the way it was supposed to, people take a look and see if there's something else that needs to be done or is there a better system that needs to be built," Mr. Waldman said.
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