Market Overview

MF Global Shortfall Might Be Worse Than Thought


Another day, another dollar...or a billion dollars, if you're one of the former clients of Jon Corzine's MF Global (NYSE: MF).

MF Global is the investment bank that took almost 230 years to build into an international powerhouse. It took Jon Corzine roughly 18 months to destroy the company, leaving investors scrambling amidst bankruptcy filings and what appears to be a massive criminal fraud.

So far, hundreds of millions of dollars in customer funds have come up missing, which is a fancy euphemism, isn't it? If I robbed a bank, the media wouldn't report that money as missing. They'd report it as stolen. Only the truly wealthy can have their apparent crimes dismissed as mere happenstance.

The take so far appears to be at least — AT LEAST — $593 million in customer funds that simply up and vanished. Since that news broke, forensic accountants have been digging through company files, trying to unwind where, exactly, that money went. In that time, they've discovered something worse: the original estimates may have been wrong by half.

The new figure shows that $1.2 billion in customer funds is missing. And that's not even the best part. The trustee, James Giddens, is running out of funds with which he can repay the various customers and creditors of MF Global. Back of the napkin estimates show that he can repay about 60 percent of customer claims with the cash on hand. Some more cash will come in from overseas assets, as they are sold and the money reclaimed. For the rest? God only knows where that money ended up.

To date, Giddens has captured $3.7 billion, all of which has come from the former U.S. depositories of MF Global. From that, Giddens has distributed $1.5 billion in collateral, and is currently returning some $520 million in cash to customers.

Unsurprisingly, the bonds for MF Global have fallen sharply since the scandal broke. MF Global also has a host of regulators and investigators poking their noses around the company's books.

The Commodity Futures Trading Commission, the Securities and Exchange Commission and the U.S. Justice Department are all investigating cash movements at the firm before the bankruptcy filing. The CFTC is particularly interested in the $600 million to $1.2 billion in futures client funds that vanished pre-bankruptcy.

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Read more of my stories at Benzinga. You can also reach me by email or on twitter @johndthorpe.

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