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November 22, 2011

Up to $1.2 Billion Might Be Missing From MF Global

The amount of money "lost" was thought to be $600 million.

But the trustee for the now-bankrupt company says the actual figure might be $1.2 billion.

As you might be aware, the FBI is investigating the company, suspicious that Corzine used client money to cover his own/the firm's bets on European sovereign debt.

In other words -- if Corzine's bets had paid off, he would have pocked the profits, since he placed those bets on his own/his firm's account.

But, the suspicion is that he used client money for this purpose, "borrowing" client funds to place the bets.

Notice that, if this is the case, had Corzine won his bets, he pockets the money; but when he loses them, it's his clients -- who never authorized this gamble -- who actually wind up losing everything.

Venture socialism, in other words.

But after weeks of reconstructing MF Global’s books, forensic accountants from Deloitte and Ernst & Young working for the trustee concluded that the account shortfall was much greater than originally estimated. Regulators have yet to verify the new numbers. While they are expected to raise their estimate above $600 million, it is unlikely to reach the trustee’s $1.2 billion figure.


These inquiries have increasingly homed in on the theory that much of the customer money had left the firm, the people briefed on the matter said.

Regulators currently suspect that MF Global — at the time run by Jon S. Corzine, the former Democratic governor of New Jersey — improperly used customer money for its own purposes in the days before filing for Chapter 11 protection on Oct. 31.

Investigators are considering two possible situations. One is that MF Global used the money to meet trading partners’ demands for extra cash, which could come back. The other is that it was used to cover trading losses, which would mean that the money cannot be recovered.

As the trustees try to pay off creditors out of what's left of MF Global, about $3 billion remains "stuck;" it's not being released to people until the trustees make sure they have a firm accounting of how much money remains, and who has first rights to it. This is, of course, causing considerable anger among clients and creditors.

LauraW. points out that in that entire article, the name "Corzine" never appears. And it's a long article.

Thanks to RDBrewer for the tips and the Separated at Birth picture links.

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posted by Ace at 03:27 PM

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