The Commodity Futures Trading Commission (CFTC) has opened an investigation into the bankruptcy of securities firm MF Global Inc. and a $600 million shortfall in customer securities.
CFTC Commissioner Jill Sommers, a Republican, has been picked to act as senior commissioner in the matter. CFTC Chairman Gary Gensler has recused himself because of a former working relationship with the head of New York-based MF Global, former New Jersey Gov. Jon Corzine, while at Goldman Sachs.
The CFTC's Division of Enforcement will explore whether the Commodity Exchange Act (CEA) or Commission regulations were violated by MF Global, and it has been authorized to issue subpoenas, the agency said. MF Global filed for bankruptcy on Oct. 31 following an ill-timed bet on European debt markets (see NGI, Nov. 7). About $600 million in customer securities overseen by MF Global are missing.
"While the commission normally does not comment on investigations, the commission has determined it is in the public interest to confirm the existence of this particular investigation," according to CFTC, which said it would not make any further comments on the investigation's developments.
"Segregation of customer funds is at the core of customer protection in the commodity futures and options markets and must be maintained at all times. I have complete confidence in...Enforcement to carry out the necessary investigation to get to the bottom of what happened at [MF Global]," Sommers said.
"Aside from the investigation we will do everything in our power to ensure public confidence in the markets by directing a review of clearing futures commission merchants (FCM) to determine that segregated funds are being properly maintained in accordance with the CEA and Commission regulations."
The CFTC has been monitoring the transfer of customer positions held by MF Global, almost all of which have been transferred to other registered FCMs (brokers), according to the agency.
The meltdown of securities firm giant MF Global is a "fresh slap-in-the-face reminder" of why the country needs tougher financial regulations, said CFTC Commission Bart Chilton last Tuesday.
"MF Global is the new poster child for why thoughtful financial regulations is needed, now more than ever," he said during the fourth annual Risk Management in Energy Trading Conference in Houston.
"Our staff scoured their [MF Global's] books, and let's just say we bring on the Beatles [song] here: It's been a magical mystery tour trying to find the loot. Half a billion dollars seems to have gone missing. I don't know about you, but losing a half billion dollars harshes my mellow. If I drop a quarter at some drive-through fast food joint, I get out and pick it up, but, a half a billion dollars?" Chilton said.
"We need to ensure that customers -- and markets -- are protected to the fullest extent of the law. I can tell you that we are using any and all of our myriad authorities under the Commodity Exchange Act in this endeavor.
"We've got expert staff that have been on this around the clock and who will continue to argue aggressively in U.S. Bankruptcy Court to protect investors. We will keep on and we will continue with whatever develops in this matter, making customers our first priority."
To help locate some of the funds, a number of clearinghouses have coordinated their efforts to provide clients with further information on the status of their account transfers.
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