MF Global: It Just Keeps Getting More Remarkable

As much as $1.2 billion in customer funds may be missing from MF Global's (OTC: MFGLQ) coffers, the trustee in charge of liquidating the company's accounts said in a statement this morning.

No one should be surprised. A timeline produced by the Commodity Futures Trading Commission shows that the original estimate, made in the early hours of Oct. 31, put the missing customer funds at $900 million. Days later it would be revised to $600 million.

What's at stake
Which figure is correct? No one knows yet, but James Koutoulas has his doubts about the new number.

"I think the number is a little too convenient in that it matches the excess equity at the holding company," said Koutoulas, who leads the Commodity Customer Coalition, or CCC, in an interview. "At this point we have to start talking about fraudulent conveyance and clawbacks."

Fraudulent conveyance allows customers to reclaim funds moved without their knowledge or consent. Here, it means if the court and trustee rule that fraud has occurred, regulators would be empowered to claw back all of the missing $1.2 billion. Assuming it can be found, that is.

Plenty is as stake. Without the umbrella of fraudulent conveyance, the 7,000 or so MF Global customers represented by the CCC could be thrust into a pool of unsecured creditors that includes deep-pocketed banks. JPMorgan Chase (NYSE: JPM  ) , Bank of America (NYSE: BAC  ) , Deutsche Bank (NYSE: DB  ) , and the Wilmington Trust arm of M&T Bank (NYSE: MTB  ) are all battling for scraps.

It's an ugly story that involves big egos, past frauds, epic regulatory failures, and systemic risks to the American financial system. And it's only just beginning. Keep the first aid kit handy.

If you have any information to share about the MF Global situation, the team at The Motley Fool is all ears. You can email tips@fool.com or call 703-254-1546.

To stay updated on the evolving story at MF Global and Wall Street reform, email imoscovitz@fool.com.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Fool contributor Matt Koppenheffer owned shares of Bank of America at the time of publication.

The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 21, 2011, at 3:17 PM, DodgyDealerz wrote:

    Face it, with this amount of money allegedly missing this cannot have been the work of one single man. A lot of lawyers are going to get rich out of this one.

  • Report this Comment On November 21, 2011, at 8:23 PM, ouchtouch wrote:

    If the money was still in a place subject to US Court process we would know it by now. It was stolen and sent abroad and will never be seen again.

  • Report this Comment On November 21, 2011, at 8:57 PM, Asher0 wrote:

    I suspect it's a case of double or quits at the commodities casino. They kept doubling the bet eventually betting the client funds playing for time ... if it had finally paid we all would all have been none the wiser. And the market would still have had one more remaining maestro.

  • Report this Comment On November 21, 2011, at 10:04 PM, EquityBull wrote:

    Why is John Corzine not indicted yet? Does the Attorney General really want to send the signal you can break the law and misappropriate 1 billion dollars and walk away? Unreal

  • Report this Comment On November 21, 2011, at 11:12 PM, sbossert wrote:

    Corzine's just a well-meaning Democrat. He'll walk.

  • Report this Comment On November 22, 2011, at 2:00 AM, TMFKopp wrote:

    @EquityBull

    I'm plenty fired up on this story. But to be fair, the accounting for a company like MF Global is an absolute beast in the best of times -- and we're talking about meltdown accounting here. The $1.2 billion announcement above is the first time the trustee has actually put a number to the shortfall since he took over.

    In my view at least, they need to focus first and foremost on getting money back to the customers and thereby restore faith in the U.S. futures markets. That needs to happen quick. Then they need to find out exactly why that money was missing and who's responsible.

    If it's Corzine, he'll get his day.

    Matt

  • Report this Comment On November 22, 2011, at 9:00 AM, MrChapel wrote:

    @sbossert

    You are correct. Poor Jon Corzine is totally innocent of any wrongdoing. It's those pesky Repubs that are to blame for his company's misfortune. Why, if they just played ball with the current administration, all would be well.

    Here's a nice overview:

    http://bigjournalism.com/rfutrell/2011/11/04/democrat-jon-co...

    Now, I'm sure the above linked article will get a large number of detractors because it's from a site set up by Andrew Breitbart, but the fact is, they're one of the few outlets who actually practice journalism.

    Solyndra, Fisker, any number of other so-called 'green' companies with Democrat bundlers/backers, Pigford, Fast & Furious and numerous other scandals coming to light in this so-called 'Most Transparent Administration', their ownership of the OWS crowd. They can't use Corzine's name now, otherwise their '99 percenters' will turn on them. He is, after all, part of Wall Street, so they'll do what they can to keep him out of it.

  • Report this Comment On November 22, 2011, at 3:11 PM, PSU69 wrote:

    Jon, a Goldman grad, knows how to lead. Witness his wonderful NJ governing success. Think any SEC dweebs will get fired over this latest fiasco?

  • Report this Comment On November 22, 2011, at 10:06 PM, nickjob wrote:

    And don't forget Gensler (CFTC Chair). He let Corzine do it! No vote on how to invest customer's funds. Just two good old boys talkin' at lunch!

  • Report this Comment On January 17, 2012, at 10:42 PM, jlee45 wrote:

    It isn't what you know, it's who you know.

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