MF Global Shortfall May Hit $1.2 billion

SpringMountain

The apparent shortfall of customer funds at MF Global Holdings Ltd's [MFGLQ  0.108    -0.022  (-16.92%)   ] broker-dealer unit may be around $1.2 billion, about double initial estimates from regulators, the trustee liquidating the company said on Monday.

The amount of money MF Global should have segregated for customers may be short by "$1.2 billion or more," trustee James Giddens said in a statement. He added that the figure could still change.

Giddens also said he currently controls about $1.6 billion of the brokerage's funds that he can use to pay back customers whose accounts were frozen when MF Global went bankrupt on Oct. 31. His plans to pay back 60 percent of customer funds by early December would nearly exhaust that amount.

The announcement was Giddens' first public statement on the amount of money under his control and his estimate of the size of the shortfall, which regulators initially had said was about $600 million.
MF Global was run by former Goldman Sachs & Co [GS  90.81    -1.10  (-1.2%)   ] chief and New Jersey governor Jon Corzine before its Chapter 11 filing on Oct. 31. The filing came after the New York-based company revealed that it made a $6.3 billion bet on European sovereign debt. Corzine resigned on Nov. 4.

Customers have criticized Giddens' efforts, calling for quicker access to a higher percentage of their accounts. The trustee has argued that a piecemeal approach is necessary until he can peg the exact size of the shortfall.

On Sunday, Reuters reported that, based on initial reports of what was supposed to be segregated for customers, the trustee appeared to be keeping about $3 billion on hand to cover what was then thought to be a roughly $600 million shortfall.

Customers had been clamoring for more specifics, complaining that their money was still frozen unnecessarily.

"Restoring 60 percent of what is in segregated customer accounts ... would require approximately $1.3 to $1.6 billion to implement," Giddens said.

The trustee had previously transferred more than $2 billion to other brokers, giving most customers access to a portion of their funds.

The Commodity Futures Trading Commission and other regulators, as well as the U.S. Attorney's Offices in New York and Chicago, have been investigating the source of the shortfall. One question is whether MF Global may have improperly co-mingled customer money with its own funds.

CFTC Commissioner Jill Sommers refused to speculate on how the $1.2 billion figure might compare with earlier estimates.

"From the very beginning we have tried as much as possible to never use a figure, out of fear that it's not right," said Sommers, who has been leading the agency's investigation into MF Global after Chairman Gary Gensler recused himself from the probe because of his ties to Corzine.

"Until the final reconciliation (of accounts) is done, you don't know what the shortfall is."

The process, she said "is going to take some time." She declined to comment further on the investigation.

A spokesman for the Commodity Customer Coalition in Chicago, which represents more than 7,000 former MF Global customers, said it was unclear how much of the $1.2 billion trustee estimate related to possible co-mingling of customer money.

Some of the missing money could be tied up overseas, said spokesman John L. Roe.

"We're hopeful given what was accounted for initially that more of the money will be found, and that the trustee will work with us on an expedited claims process for customers," he said.

SpringMountain

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