February 8, 2012
STATUS UPDATE FROM THE OFFICE OF JAMES W. GIDDENS, TRUSTEE FOR THE LIQUIDATION OF MF GLOBAL INC., CONCERNING THE TRUSTEE’S INVESTIGATION
Trustee’s summary of what happened at MF Global in the last week of operations, :
“The investigation to date has found that transactions regularly moved between accounts and that funds believed to be in excess of segregation requirements in the commodities segregated accounts were used to fund other daily activities of MF Global. In the past, such transfers were in amounts of less than $50 million, but as liquidity demands increased and could not be met from internal sources, much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day. By Wednesday, October 26, as the result of increasing demands for funds or collateral throughout MF Global, funds did not return as anticipated. As these withdrawals occurred, a lack of intraday accounting visibility existed, caused in part by the volume of transactions being executed, and the 4(d) U.S. segregated commodity customer account appears to have reached a deficit condition on Wednesday, October 26 that continued through to MF Global’s bankruptcy……
“The number of transactions executed by MF Global during the last week prior to the bankruptcy escalated to unprecedented volumes. The rush to meet funding needs for collateral, margin and customer liquidations led to billions of dollars in securities sales, draws on credit facilities, and a web of inter-company loans across affiliates, some foreign. The company’s computer systems and employees had difficulty keeping up with the unprecedented volume of transactions. A number of transactions were recorded erroneously or not at all. So called “fail” transactions where either the buyer or seller fails to deliver the cash or the security, respectively were five times the normal volume during the firm’s final week….
What happened to securities clients:
“…the Trustee has received Court approval to sell and transfer approximately 318 active retail securities accounts, which is substantially all of the securities accounts at MF Global Inc. Nearly all securities customers have received 60% or more of their account value and already 194 of former MF Global Inc. securities customers have received the entirety of their account balances because of a Securities Investor Protection Corporation guarantee.
Customer funds shortfall started the Wednesday before bankruptcy:
“The Trustee’s investigation has revealed that, while personnel may not have been immediately aware of it, MF Global Inc. experienced a shortfall in 4(d) customer funds beginning during the day on Wednesday, October 26. The MF Global parent company struggled to continue to operate and even to sell the business, but MF Global Inc. appears to have remained in a shortfall of commodity customer segregated funds virtually continuously until its parent filed for Chapter 11 protection on Monday, October 31 and the Securities Investor Protection Act (SIPA) proceeding was commenced against MF Global Inc. later that afternoon….
What is involved in investigating what happened at MF Global:
“To understand where the money went during October 2011, the analysis conducted by the Trustee’s professionals has included 840 cash transactions in excess of $10 million that total $327 billion, and an ongoing analysis of related securities transactions involving a value of over $100 billion. These large cash transactions alone span 47 bank accounts across eight financial institutions. An additional 20,000 cash transfers that total $9 billion involve transfers of less than $10 million….
How big a player MF Global was in the commodities markets:
“It is estimated that 40% of all commodity futures exchange activity in United States markets came from MF Global Inc. trades….