Great Expectations, Legal Drama, and Continued MF Global Investigations

December 15, 2011 Attain Capital 1 Comment  Like
Macro Commentary

It’s time to get excited! They found the missing MF Global money!

Hate to burst your bubble, but you may want to wait a minute before you jump for joy. Here’s the background…

CFTC Commissioner Jill Sommers, who was put in charge of conducting the MF Global investigation after Gary Gensler recused himself due to his personal connection with Corzine, came out yesterday and said that they were far enough along the trail that they know where the money went. Now, it’s a matter of figuring out which transactions were legitimate and not.

This is certainly good news, and an improvement over the complaints about bad bookkeeping that we were previously hearing from the CFTC. That being said, there are a few things you need to think about:

1) They know where the money went- that doesn’t mean they have it.

The comments made by Sommers indicated that they now have a clear picture of the transactions that were made. She did not say that they had located the funds in an account, or that they had recovered the money, which, if it were the case, would definitely have been blasted out as a victory cheer from every corner of the earth. This development, unfortunately, does not give us any indication of when (or if) that money will be available to the clients.

2) They don’t know where all of it went, though.

Sommers may be confident that they now have the full story, but CFTC Commissioner Bart Chilton is not. Shortly after Sommers’ comments came out, Chilton tempered expectations of how much money had been accounted for, saying “Based upon the most up-to-date information available, I do not have confidence that we know where all the money went.”

3) They’re still figuring out if these transactions were legitimate or not. If not, well…

It’s been made clear that, assuming they do get their hands on any amount of the missing money, it will not be distributed until the nature of these transactions is fully understood. This is the part that makes us nervous. We’re hoping everything works out, but some have speculated that those funds could have been transferred from an American bank to an international subsidiary in order for MF Global to skirt regulations on rehypothecation and get access to extended lines of credit.

Such a transfer may happen regularly for an FCM such as MF Global, making the movement look routine on paper, but it’s that rehypothecation component that could cause an issue. Should it be determined that this was the case, it’s likely that we’ll be watching a complex financial legal battle over whether those funds are now the property of the lien holder (i.e. the bank to which the collateral was pledged) or the MF Global client- pitting individual investors against big financial institutions once more. Anyone else think this sounds like 2008?

Further reading: Reuters


One comment

  1. S.Quade
    December 25, 2011

    There is no longer law in the USA. No one should think their money is safe when the legal system is corrupted along with everything else.
    Ann Barnhardt’s latest rant discusses how the MFG bankruptcy was illegally and fraudulently drawn up as a Chapter 7 SECURITIES DEALER bankruptcy, rather than a commodity brokerage- because in commodity brokerage bankruptcies, bankruptcy law places CLIENTS RATHER THAN JP MORGAN AT THE FRONT OF THE LINE!!

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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