MF Global: Mistake or mischief?
The collapse of MF Global last fall continues to ripple through the agriculture community.
MF Global was a huge financial derivatives company that, among many other things, provided commodity futures brokerage services to farmers and cooperatives. Commodities futures markets are used by some farmers to lock in a price for all or part of their crop and minimize risk.
The company, led by former Democratic New Jersey governor and senator Jon Corzine, went bankrupt in October, having aggressively extended its position on Eurozone sovereign bonds to $6 billion. As the value of those securities fell, the company scrambled to find cash to cover its bets. When it filed for bankruptcy, MF Global reported debts of $39.7 billion against assets of $41 billion.
Normally that shouldn't have been a problem for farmers and co-ops doing business with the company. Brokerages are supposed to keep client money segregated from company money. At worst, customers should have expected that the money in their accounts, frozen when bankruptcy was filed, would be returned to them by a court-appointed trustee in relatively short order.
But in this case, in its final days MF Global swept as much as $1.6 billion from 38,000 customer accounts and used the money to prop up its own operations, pay its creditors and other customers closing their accounts.
The company moved $327 billion in and out of its accounts in the month before the collapse, making tracing the source of each transaction and clawing back customer money a complicated task. Some customers have been paid in part or in full. Others have received nothing, and have no assurance that they ever will.
According to media reports, insiders attribute at least some the loss to human error, mistakes made in the chaotic final days. For example, finance officers trying to remove company money that had been deposited in customer accounts to facilitate customer trades may have typed in the wrong computer code and removed client funds.
Mistakes happen. But MF Global was financially sophisticated, suggesting these transactions were something far more deliberate. Out in the country they're a bit more direct.
"In any farm community, it would be theft," said Montana farmer Marty Klinker, who is owed $175,000 and is the lead plaintiff in a class-action suit against MF Global executives and the company's banker and auditor.
We think that's a pretty accurate description.
Patrick Fitzgerald, the U.S. attorney in Chicago, may have similar suspicions. He has impaneled a federal grand jury that's investigating MF Global's collapse. We have no doubt he will ferret out those responsible.
With hundreds of millions of dollars still in the wind, it could be the only justice some clients see.