EXCLUSIVE-UPDATE 2-Regulators know where MF Global funds went

WASHINGTON Thu Dec 15, 2011 5:22am IST

Former MF Global CEO Jon Corzine (2nd L) is trailed by reporters after testifying about the firm's bankruptcy during a hearing before the U.S. House Agriculture Committee on Capitol Hill in Washington, December 8, 2011. REUTERS/Jonathan Ernst

Former MF Global CEO Jon Corzine (2nd L) is trailed by reporters after testifying about the firm's bankruptcy during a hearing before the U.S. House Agriculture Committee on Capitol Hill in Washington, December 8, 2011.

Credit: Reuters/Jonathan Ernst

Related Topics

Stocks

   

WASHINGTON (Reuters) - U.S. regulators now have a more complete picture of money transfers in the final days of bankrupt brokerage MF Global MFGLQ.PK, but must sort out which transactions were legitimate before more money can be released to customers, a top official told Reuters on Wednesday.

Jill Sommers, who is heading the Commodity Futures Trading Commission's review of MF Global, said regulators "are far enough along the trail" that they know where the money went.

"Now it's just finding out which ones of those transactions are legitimate and which ones of them are illegitimate," Sommers said.

The CFTC and the trustee liquidating the firm are under intense pressure from lawmakers and customers to provide answers about what happened to hundreds of millions of dollars in customer money that went missing as the firm collapsed.

MF Global officials, including former Chief Executive Jon Corzine, have told lawmakers they simply do not know where the money is, and deny authorizing any misuse of customer money.

"We certainly don't want to lead anyone to believe we don't know what happened. We do know, and we see where all the transactions went," said Sommers, a Republican commissioner, in an interview on Wednesday.

She declined to reveal details on the fund transfers until investigators have determined the purpose of all the transactions. Sommers could not estimate when regulators will complete their investigation, but said "really good progress" is being made.

Fellow CFTC Commissioner Bart Chilton, a Democrat, tempered expectations. Chilton said in a statement after Sommers' remarks were published that a thorough accounting of all customer funds remains a work in progress.

"Based upon the most up-to-date information available, I do not have confidence that we know where all the money went," Chilton said.

MF Global filed for bankruptcy on October 31 after it was forced to reveal that it had made a $6.3 billion bet on European sovereign debt, spooking investors and customers.

The ensuing search for missing money has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors.

A trustee liquidating the firm has estimated the shortfall could be as high as $1.2 billion.

LEGITIMATE VS. ILLEGITIMATE

Sommers said on Wednesday that just because money was transferred out of a customer account to the broker-dealer account "doesn't mean it was illegitimate."

Under certain circumstances, brokerages are allowed to take customer funds and invest them in a range of approved securities.

However, in exchange for using the cash, firms are required to back it up with high-quality collateral such as U.S. government securities.

CME Group, MF Global's front-line regulator, has stated plainly that the firm misused customer funds as it faced a liquidity crisis.

At a Senate Agriculture Committee hearing on Tuesday, CME Executive Chairman Terrence Duffy escalated the allegations, saying a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew the firm used customer money to lend $175 million to its European affiliate.

Duffy said the matter had been turned over to the Justice Department, but he did not provide more details about the loan.

'DOWN TO THE PENNY'

Sommers said investigators are now trying to back up thousands of transactions with underlying documentation such as a signature or email to determine whether the customer approved the transfer into a broker-dealer account, a complicated process.

Until regulators can determine which transactions were illegitimate, they will not be able to determine the shortfall in customer funds, and how much money will ultimately be distributed back to customers, Sommers said.

A judge on December 9 approved an additional $2.2 billion transfer to MF Global's U.S. commodities customers, bringing the recovery to 72 percent of accounts. [

"Until you actually know down to the penny which ones of those transactions were not legitimate transfers, you're not going to know whether or not you can claw back some of that money from other accounts," Sommers said.

"Until you know the exact shortfall, you're not going to know how much can then be distributed to customers above the 72 percent."

Pat Roberts, the ranking Republican on the Senate Agriculture Committee, said Sommers' revelation sets off the next chapter in the MF Global saga.

"Now the next step is to find out were (the transfers) legitimate or were they illegitimate, and then the big question is: who on Earth was responsible," he told Reuters Insider.

(Additional reporting by Nick Brown in New York; Editing by Karey Wutkowski and Tim Dobbyn)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared
People walk in the Wipro campus in Bangalore June 23, 2009. REUTERS/Punit Paranjpe/Files

Wipro Q4 net profit beats estimates, rises 29 percent

Wipro posted a 29 percent rise in its fourth-quarter net profit, beating expectations, helped by increased IT spending by its customers. For the quarter ended March 31, the company said it earned 22.27 billion rupees compared with 17.29 billion rupees a year earlier.  Full Article | Full Coverage 

REUTERS SHOWCASE

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Read | Full Coverage 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Insider Trading Case

Insider Trading Case

Ex-Goldman director Rajat Gupta to surrender June 17 in insider case.  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage