MF Global  former Assistant Treasurer Edith O'Brien.

MF Global former Assistant Treasurer Edith O’Brien.

 MF Global Chief Executive Jon Corzine

MF Global Chief Executive Jon Corzine

Mr. Corzine has agreed to pay the $5 million penalty out of his own pocket.   .MF Global employee in Chicago, Edith O’Brien agreed to settle, striking a deal that imposes a $500,000 penalty and an 18-month prohibition on her associating with a futures broker like MF Global. In 2013, the Commodity Futures Trading Commission sued Mr. Corzine for failing to “diligently supervise” the firm as it jeopardized the clients’ accounts.

The agency did not directly link Mr. Corzine, 70, to the missing money, but it did accuse a lower-level employee in Chicago,Edith O’Brien , of “aiding and abetting” the misuse of customer money, saying she allowed it to be used to plug holes in MF Global’s own accounts.

December 24 2014 MF Global Holdings Ltd to pay $1.2 billion in restitution and a $100 million penalty ]

federal court in New York has ordered MF Global Holdings Ltd to pay $1.2 billion in restitution and a $100 million penalty over charges it misused customers funds and committed related supervisory violations, the U.S. Commodity Futures Trading Commission said on December 24.

The CFTC said its litigation will continue against former MF Global Chief Executive Jon Corzine and former Assistant Treasurer Edith O’Brien.

[March 28 Caymans: higher fees to launder criminal proceeds than to assist them in tax evasion]

Joshua Vandyk, a U.S. citizen, and Eric St-Cyr and Patrick Poulin, Canadian citizens, were indicted for conspiracy to launder monetary instruments on March 24. U.S. citizen Joshua Vandyk and Canadian Eric St-Cyr lived in the Cayman Islands and worked for an investment firm called t,Clover Asset Management which St-Cyr founded. Canadian lawyer Patrick Poulin was a partner at Bishops, a firm based in the Turks and Caicos.
Poulin, an attorney, at a law firm based in the Turks and Caicos, worked and resided in Canada and in the Turks and Caicos. His clientele also included numerous US citizens. Vandyk and St-Cyr lived in the Cayman Islands and worked for an investment firm based in the Cayman Islands. St-Cyr was the founder and head of the investment firm, whose clientele included numerous US citizens. Vandyk and St-Cyr directed the undercover agents posing as US clients to create offshore foundations with the assistance of Poulin and others because they and the investment firm did not want to appear to be dealing with US clients. Poulin established an offshore foundation for the undercover agents posing as U.S. clients and served as a nominal board member in lieu of the clients. Poulin transferred wire payments from the offshore foundations to the Cayman Islands, where Vandyk and St-Cyr invested those funds outside the United States in the name of the offshore foundation. The investment firm represented that it would neither disclose the investments or any investment gains to the U.S. government, nor would it provide monthly statements or other investment statements to the clients. Clients were able to monitor their investments online through the use of anonymous, numeric passcodes. Upon request from the U.S. client, Vandyk and St-Cyr would liquidate investments and transfer money, through Poulin, back to the United States. According to Vandyk and St-Cyr, the investment firm would charge clients higher fees to launder criminal proceeds than to assist them in tax evasion.

[April 5 2013]

Context Partners Fund LP v. Corzine (S.D.N.Y.)

Context Partners Fund LP v. Corzine (S.D.N.Y.)

MF Global on April 5 won court approval of a plan to liquidate its assets, pay back creditors and end the $40 billion bankruptcy that rocked the financial world in 2011.
[April 23]
No MF Global executives have been held accountable for their actions, more than six months after the firm’s collapse and billions of dollars of other people’s money have been lost. Come to think of it, no one else on Wall Street has been held accountable for blowing up our economy, either. How can this still be the case?

On July 28 and again on Aug. 3, MF Global raised $325 million by selling bonds — the first a 3.375 percent convertible-note offering, due 2018; the other a 6.25 percent senior note offering, due 2016. Thanks to the company’s collapse and subsequent bankruptcy filing on Oct. 31, these two bond offerings now trade at around 35 cents on the dollar. What in August 2011 was worth $650 million is now valued at about $227 million, a staggering loss of around $423 million in a matter of months.
Context Partners Fund LP v. Corzine (S.D.N.Y.)
This class action lawsuit was filed against certain senior executives of MF Global Holdings Ltd. (OTC: MFGLQ; formerly NYSE: MF) (“MF Global” or the “Company”) based upon their allegedly false and misleading statements and omissions in connection with the Company’s July 28, 2011 offering of 3.375% Convertible Senior Notes due 2018 (CUSIP: 55277JAB4) and August 3, 2011 offering of 6.250% Senior Unsecured Notes due 2016 (CUSIP: 55277JAC2) (respectively, the “Offerings” and the “Notes”). The lawsuit was brought on behalf of all persons and entities, except Defendants and their affiliates, who purchased or otherwise acquired the Notes in or traceable to the Offerings, and were damaged thereby.

The action arises out of the Company’s financial implosion, which was allegedly caused by the Defendants’ wholesale disregard for its purported risk management and internal controls, as they sought to transform the Company from a broker-dealer into a full service investment bank at all costs.

In this regard, the complaint alleges the Defendants made numerous material misrepresentations and omissions of material facts in the Offering materials and documents incorporated by reference therein, concerning, among other things, the adequacy of the Company’s risk management, its liquidity and internal controls.

Goldman Sach commodities trading goes awry

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

MF Global  $1.2 billion or more shortfall

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.
[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.