Sunday, 12 February 2012

MF Global hole widens to $1.6 billion

KPMG, the bankruptcy administrator of the former financial services company MF Global revised upwards the estimation of the shortfall in customer custodial accounts. It seems that Jon Corzine, the CEO of MF Global authorised the embezzlement of customer funds through commingling (using the cash left in margin accounts for collateral in their own transactions).  The claims from commodity traders using MF Global accounts are now $6.9 billion, out of which 3.9 billion will be returned by the trustee in the upcoming week. It holds an additional $1.4 billion in reserve, thus leaving it with a gap of $1.6 billion in claims.

The "honorable" Jon Corzine

The ambition of Jon Corzine to radically transform MF Global from a mid-weight brokerage business to a full fledged investment bank was the one that ultimately led to its demise. What is truly startling is that in the late days of MF Global, Corzine accepted the usage of customer cash to finance risky bets on European debt (trade that went underwater in  a most spectacular way).  He reportedly tapped in customer accounts, and as a result there is now a $1.6 billion gap, out of which $900 million are from US accounts and $700 million are from UK accounts.

While some of the customers may well have been burned by this outcome, the real question is how many of the other mid-tier, or even heavyweights are engaging in such activities without the consent of the rightful owners of funds?

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