Will MF Global Customer Interests Be Crushed by Big Banks?http://www.fool.com/investing/general/2012/02/08/will-mf-global-customer-interests-be-crushed-by-b.aspx Matt Koppenheffer
February 8, 2012
I'm not a lawyer. I don't even play one on TV. As a result, one of the most difficult aspects of breaking down the MF Global (OTC: MFGLQ) case has been trying to understand how the legal system works in this kind of situation.
At this point, my nagging suspicion is that it simply doesn't work. Or at the very least, a quagmire of overlapping rules and regulations has created a labyrinth that not even some of the sharpest legal minds (or at least some of the most well-paid legal minds) seem to be able to navigate.
Not that the legal issues are the only maze that those working on MF Global have had to navigate.
This just in
The numbers that Giddens included in his press release back up his familiar refrain that tracking down the $1.2 billion of missing customer money would be difficult because of the frenetic final days at MF Global. Here are a few of the pertinent numbers from the release:
To put the magnitude of these numbers in perspective, MF Global's -- the holding company -- final earnings release reported total assets of $41 billion as of Sept. 30, 2011. Shareholder equity at that date was put at $1.2 billion. That means that in the course of one week, the broker's cash transactions alone were a multiple of the company's total assets, while margin calls were nearly half of the company's total previously reported book value.
In other words, that was indeed an incredibly hectic week.
The same old story
The answer is still unclear, and if it is going to happen, the road to 100% appears to be a long one. While it certainly helps that the trustee now has a good idea of where all of MF Global's money went, reclaiming it is hardly an easy matter. Since these transactions involved MF Global sending money to parties that it rightfully owed money to, Giddens said he's forced to "investigate the complex factual and legal questions" that might allow him to pursue claims against some of the recipients.
But to the non-lawyer in me, this all seems hopelessly and needlessly convoluted. The bottom line is that if MF Global pulled money from customer accounts -- without replacing the funds with certain allowed assets -- to meet other obligations, then it did so illegally. In that case, the customers should be made whole from the general assets of the broker or even the holding company if necessary.
And it appears that the latter scenario is exactly what happened. Giddens wrote:
Unfortunately for the customers that are still out roughly a third of their MF Global accounts, recovering the property pits them against some of the most powerful financial bodi