Investigators Scour Books Of MF Global

When the investment firm MF Global filed for bankruptcy Monday, it told regulators it couldn't account for hundreds of millions of dollars in customer accounts. The missing money caused negotiations to save the firm from bankruptcy to fall apart.

Copyright © 2011 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

GUY RAZ, HOST:

And I'm Guy Raz. Investigators are poring over the books of MF Global today. They're trying to figure out what happened to several hundred million dollars. The investment firm, run by former New Jersey Governor Jon Corzine, filed for bankruptcy yesterday. It failed in large part because it made ill-timed multibillion dollar bets on European debt. NPR's Yuki Noguchi reports on where all that missing money could have gone.

YUKI NOGUCHI, BYLINE: MF Global may not be a household name, but in commodities and futures trading circles, it was a big player, a major broker of deals.

MICHAEL GREENBERGER: They were very highly regarded, very highly respected. And I would say had the highest trust of their customers.

NOGUCHI: Michael Greenberger is a law professor at the University of Maryland. And in the late 1990s, he was director of trading and markets for the U.S. Commodities Futures Trading Commission. MF Global's customers range from small family farmers looking to hedge bets on crops to oil companies in private equity groups trading big volumes on commodities. Those clients kept so-called segregated accounts with MF Global, a bit like a consumer might keep a checking account with a bank. By law and by the rules of the exchange, MF Global was not supposed to touch that money.

GREENBERGER: The purpose of that is to ensure that the money is there for the customer and the customer can get the money.

NOGUCHI: The problem is, according to regulatory sources, several hundred million dollars seems to have vanished from those accounts. The CFTC is likely to launch a formal investigation in conjunction with the Securities and Exchange Commission. Greenberger says the allegations suggest MF Global tried to shore up its balance sheet by drawing on the cash of its customers. He says it's akin to burglary. Is it illegal? Yes. Are there safeguards? Often, there are security systems designed to prevent it, but clearly, those failed.

GREENBERGER: And I suspect when all is said and done that we're going to find out that the kinds of procedures, auditing procedures, risk protection procedures, surveillance procedures were somehow shut off so this could happen.

NOGUCHI: The question now of how MF Global's clients get their money back is a thorny one, legally. Greenberger says the CME Group, which operates the Chicago Mercantile Exchange and other commodities exchanges MF Global used, is legally obligated to make good on those accounts if MF Global cannot. In an email, a spokesman for the CME Group denied liability. He said any amount no longer in the customers' segregated accounts is MF Global's responsibility. In a conference call this morning, CME Group chief executive Craig Donohue mentioned the incident but declined to take questions.

CRAIG DONOHUE: While we are unable to determine the precise scope of the firm's violation at its time, we are investigating the circumstances of the firm's failure.

NOGUCHI: Former regulator Michael Greenberger says sorting this out could take some time, especially with MF Global in bankruptcy. He says the case could also get referred to the Justice Department for a criminal investigation. Yuki Noguchi, NPR News, Washington.

Copyright © 2011 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: