According to MF Global trustee Jim Giddens, the customer account shortfall at MF Global may exceed $1.2 billion, more than double the original $600 million believed to be missing. This means that the failed broker-dealer may be short as much as 22% of the $5.4 billion it was supposed to be holding in segregated customer accounts.
Giddens explained that accounts and investigators have been hard at work tracking the whereabouts of the missing funds, but that estimates may change. No details were offered as to where or how the second shortfall was found. The additional shortfall, as with the first shortfall, is primarily in commodity accounts. What little money is in the 400 frozen securities accounts will be refunded via a different segregated account. “Our goal is still a 100 percent return, and right now we’re very close to 60 percent. If we continue to recover more, that will determine how much more we can distribute,” said a spokesman.
The trustee also said that the disbursement of 60% of the funds that should have been in segregated customer accounts will take between $1.3 and 1.6 billion. A payout of this size will deplete almost all the assets within Giddens’ control. He expects to be able to transfer these funds to MF Global customers by early December, but has no access to funds beyond that $1.6 billion at this time. Giddens will also be coordinating with trustees overseas in charge of the liquidation of MF Global’s foreign brokerages. U.S. customers who had foreign investments will therefore receive funds from a different account that their domestically-invested counterparts.
Meanwhile, the CFTC has ramped up its investigation of MF Global, and is expanding its general enforcement capacity. Alongside the special commission investigating the bankrupt firm, the Commission’s David Meister has announced that he is creating two new enforcement squads. One will focus on fraud and manipulated, and the second will be devoted entirely to the swaps market. Meister has already overseen the enforcement division’s most active year.