Goldman Sachs: settles Chicago Merc CFTC trouble for only $1.5m

Goldman Sach commodities trading goes awry

Goldman Sachs Group Inc. (GS) will pay $1.5 million to settle U.S. Commodity Futures Trading Commission claims the firm failed to supervise a trader who hid an $8.3 billion position. One CFTC commissioner dissented, saying the penalty is far too small.
Goldman Sachs inadequately policed trades made by Matthew Marshall Taylor on seven days in late 2007, ultimately suffering more than $118 million in losses as his bets were unwound, according to the CFTC.

[november 9]
Matthew Marshall Taylor is accused by U.S. Commodity Futures Trading Commission of concealing an $8.3 billion position and causing Goldman Sachs Group to lose $118 million in 2007 fabricated commodities trades and obstructed the firm’s discovery of his position, risk and profits and losses, the U.S. said in a complaint filed yesterday in federal court in New York.
Taylor concealed the position by bypassing the firm’s internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system, according to the complaint

[August 17]

MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31

MF Global $1.2 billion or more shortfall

Former New Jersey Gov. Jon Corzine is likely to not only avoid criminal prosecution over his role as CEO at MF Global, but that he’s thinking about starting a hedge fund.

[March 29]
Edith O’Brien, Treasurer for MF Global pleads the fifth before the House Financial Services Committee when asked about Jon Corzine (March 28, 2012).

[February 23]The Commodity Futures Trading Commission and the federal bankruptcy trustee for the brokerage unit of MF are looking into two transfers made from customer accounts, including one for $165 million that has not been previously disclosed, A key figure in transfers ahead of the firm’s collapse was Edith O’Brien. Edith O’Brien was Global Director of Liquidity Management, MF Global, an MF Global assistant treasurer who worked in the Chicago office. Officials in the Chicago office played a role in both transfers, noting that neither Ms. O’Brien, former CEO Jon Corzine nor other company officials have been accused of wrongdoing.

Mr. Corzine called Ms. O’Brien on Oct. 28 to remedy an overdraft at the company’s London bank account with J. P. Morgan Chase & Co. She sent an email to some coworkers saying she needed $175 million sent immediately, the Journal reported. The overdraft was covered that day with money from MF Global’s customer account. In December, Mr. Corzine testified to a congressional panel that Ms. O’Brien told him the transfer was legitimate,. She later would not sign paperwork from J. P. Morgan to confirm the transfer was appropriate,
[February 11]The new estimate for the size of that shortfall is broken down into two main components: roughly $700 million for customers who traded on foreign exchanges, the rights to which are in dispute with MF Global’s UK entity; and about $900 million for customers who traded on domestic exchanges.

The estimate was reached through the processing of loss claims submitted by customers. Giddens is estimating a total of $6.9 billion in claims, $3.9 billion of which has already been paid back.

That leaves $3 billion outstanding. Giddens is keeping another $1.4 billion in reserve for now, yielding the estimated $1.6 billion gap.
[February 6]The $1.2 billion in MF Global Inc. (MFGLQ) customer funds estimated to be missing began to flow out of the brokerage on Oct. 26, five days before its collapse, as its computers and employees failed to keep up with margin calls and demands for collateral, MF Global regularly used money from the segregated accounts of commodities customers to finance daily activities. During the firm’s final days, MF Global took out larger amounts as customers fled and a rush to meet collateral requirements led to billions of dollars in securities sales, credit draws and inter-company loans to foreign affiliates.
The New York-based brokerage moved $105 billion in cash in the week before its parent filed for bankruptcy and made $100 billion in securities trades, according to the statement. The trades included liquidating customer securities and the firm’s own positions.
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[February 1]The bankruptcy trustee of MF Global’s U.S. brokerage unit has returned about 72% of the money in customer’s U.S. accounts when the New York firm filed for bankruptcy at the end of October.

By contrast, all the money of U.S. customers invested on foreign exchanges remains frozen.

The bankruptcy trustee on the case, James Giddens, is battling the U.K. bankruptcy administrator for control of about $750 million in U.S. customer assets tied up in the U.K. because they involved trades in non-U.S. markets. That money isn’t included in the missing $1.2 billion that officials now fear may never fully be recovered.
[earlier]Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.

As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a “significant amount” of the money could have “vaporized” as a result of chaotic trading at MF Global during the week before the company’s Oct. 31 bankruptcy filing, said a person close to the investigation.
[UK]T the so-called “bar date” for claims to be submitted is February 29 under the Financial Services Authority’s (FSA) new “Special Administration Regime” (SAR), which has been designed to speed up the return of assets to creditors.
[November 21 2011]“Their books are a disaster,” Scott O’Malia, a commissioner at the Commodity Futures Trading Commission, told the Wall Street Journal in an interview two weeks ago. The newspaper also quoted Thomas Peterffy, CEO of Interactive Brokers Group Inc., saying: “I always knew the records were in shambles, but I didn’t know to what extent.”
If Pricewaterhouse can’t spot control weaknesses at a relatively small shop like MF, which had $41 billion of assets, it’s a bit much to expect that the firm would catch anything materially amiss at Goldman, which has $949 billion (GS) of assets, or at a serial acquirer such as JPMorgan, with $2.3 trillion (JPM) of assets.

Fortunately for Pricewaterhouse, there’s no better alternative. What’s Goldman or JPMorgan going to do? Switch to KPMG LLP? Or Ernst & Young LLP? Or Deloitte & Touche LLP? Their track records are no better.
;November 21]The amount of customer funds missing from accounts at the bankrupt brokerage MF Global “may be as much as $1.2 billion or more,” the trustee overseeing the firm’s liquidation said Nov.21
That would be roughly double previous estimates of about $600 million.In a statement, trustee James W. Giddens said the estimate is preliminary and “may well change.”
[Thursday, November 17, 5:01 PM ]It’s looking like outright theft at MF Global (MFGLQ.PK), where investigators believe some of the customer accounts were raided to pay off losing bets, meaning the money isn’t missing, it’s gone. Sources say $593M in client funds remains unaccounted for. Like other brokers, MF was allowed to borrow customer cash if it put up collateral, but it appears the firm did not provide the necessary backing. Ex-Corzine employee and current CFTC Chairman Gary Gensler, said he first learned of the missing funds during a 2:30 a.m. call on Oct. 31, he and Jon Corzine had ties at Goldman Sachs (GS) and in the Senate, where Gensler was an aide. . MF Global Holdings Ltd., the broker filed for bankruptcy on Oct. 31. CME Group Inc., the world’s largest futures exchange, audited MF Global during the week before the bankruptcy and found the accounts were properly segregated. The shortfall in client funds was discovered during the weekend before the bankruptcy. Transfers at MF Global were made “in a manner that may have been designed to avoid detection,” CME said
[November 12]Corzine played a central role in convincing the CFTC to hold off implementing regulations that might have prevented the company’s collapse. While regulators were pressing to limit the ability of financial firms to essentially borrow money from their own customers, Corzine, a former New Jersey governor and former Goldman Sachs chairman, led the charge against the proposed rule, using his prolific list of contacts in Washington. In the end, CFTC chairman Gary Gensler, who had worked for Corzine at Goldman Sachs, delayed the vote on the new rule until the fall.
The $593 million shortfall in client money at MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, appears to result from a “massive hide- and-seek ploy,” Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, a Democrat, said today.