MF Global woes compounded in investigation, lawsuit

The turmoil at failed broker-dealer MF Global Holdings has only increased in its third week of collapse. The latest piece of evidence uncovered suggests that hundreds of millions may have gone missing from customer accounts as long as four days before MF Global filed for bankruptcy.

The Wall Street Journal reports that the the shortfall in customer funds, currently dated to October 27, may have occurred several days before company officials reported to the CFTC, SEC and the exchange operator CME Group. While MF Global was struggling to survive customer flight before its October 31st bankruptcy filing, it failed to mention any deficits in customer accounts. On October 28, officials went so far as to tell the CME Group that customer funds were in good shape, according to sources close to the matter. It wasn’t until hours before the bankruptcy filing that MF Global executives mentioned to regulators that there was a shortfall. They dated the missing money (about $200 million) to October 27-28. The long-term implications of this revelation are not positive for the failed broker-dealer. Had the CFTC and SEC known about the shortfall sooner, they could have intervened faster or handled the crisis differently.

The CFTC is also investigating the fate of hundreds of millions of customer dollars that were transferred at the company beginning on October 24. These transfers were not reflected on the firm’s general ledger. “We’re still trying to assess how far this goes back,” said a CFTC official involved in Jill Sommers’ investigation. The unrecorded transfers have impeded investigators’ ability to track the missing funds.

MF Global is also facing legal challenges from ex-employees laid off last week.  Several employees have filed suit against the company for failure to provide 60 days’ advance written notice of the firings, as required by the Worker Adjustment and Retraining Notification Act. If successful, the wage claims of he 1,066 who lost their jobs have priority status under bankruptcy law, and could even be paid in full. A spokesperson for trustee Jim Giddens said he “acted appropriately in connection with the termination of employees as part of the court-mandated liquidation and wind-down of MF Global Inc.”

Read more about the MF Global investigation and employee lawsuits.
Creative Commons License photo credit: billaday

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