Vaporized Money
Research for Online Investors

02/02/12

It is official now, the MF Global missing $1.2 billion dollars from customer accounts may have ‘Vaporized.’  That was the report in the Wall Street Journal last weekend.  This was the characterization made by ‘someone close’ to the investigation.  It seems the last week of trading at MF Global was somewhat ‘chaotic.’  We wrote about Hypothecation and how JP Morgan used it to protect themselves in front of MF Global’s customers last month.

The problem the investigators are having is one of volume and turf battles.  The Wall Street Journal article brought out more information, from investigators, to kill the idea of money being untraceable.  The New York Times had an article on Monday asserting the MF Global Missing Money is Traced.

Tracing the money may not be as easy as collecting the money.  The NYT says MF may have paid securities customers that were closing their accounts out of account balances from futures customers.  Their sources asked for anonymity because of the ongoing investigation.  The difficulty is that securities and banking customers had a right to the money they withdrew, so it will be difficult to ‘claw it back.’

MF Global’s carcass has two bankruptcy trustees.  James Giddens is the trustee charged with liquidating the brokerage unit and returning money to customers.  Former FBI director Louis Freeh is the trustee responsible for liquidation of the firm to recover money for creditors.

The trustees (and Federal investigators) have over 10,000 emails to review.  Both have been cautious to share evidence with the other since they have different missions.  The Commodity Futures Trading Commission (CFTC) is also investigating the bankruptcy.  Jill Sommers with the CFTC said the transfers have been identified and the funds are being traced.

While seventy-five percent of customer funds have been returned to most of the 38,000 customers of MF Global, some have not received any.  MF Global filed for bankruptcy on Oct. 31, 2011  It has now been three months since some customers were left hanging, unsure if their funds will be returned.

Sentinel Management Group was a Chicago brokerage firm that went bankrupt in 2007.  Fred Grede was the trustee in that case and traced the money to the Bank of New York Mellon...within a week.

Sentinel managed about $2 billion dollars for its customers of which $600 million was never recovered.  According to Reuters, on Nov. 3, 2011, clients are still ‘wrangling over how to divvy up what remains.’

Giddens, in his role to return money to customers, has 100 consultants from Deloitte and 60 forensic accountants from Ernst & Young examining MF Global documents.  There was $327 billion dollars transferred by wire in the last month of MF Global’s existence.

CNN reports this morning that Greece is making progress in their negotiations with private bondholders to write down the face value of Greek debt.  All well and good.  Successful completion of these negotiations is required for Greece to receive more money, which they need by March to pay bills and redeem $18.85 billion dollars in maturing bonds.

Greece secured agreement with the ECB, IMF and EU leaders in October to a future rescue package of $169 billion.  Behind the scenes, the Greek government is pushing to increase the size of this second bailout package by $20 billion dollars.  Their economy is deteriorating and they expect to need more money.

Germany’s Angela Merkel proposed Greece give up budgetary control to a special EU commission last weekend.  Greece rejected this as an infringement of national sovereignty.

Leaders of 25 out of the 27 European Union countries agreed to a pact that increases fiscal discipline on Monday at their meeting in Brussels.  The pact includes a balanced budget requirement, and fiscal policies of individual governments subject to EU authority.

They hope to sign the agreement at the next EU summit in March.  It will not take effect until passed by individual nation’s parliaments.  EU laws require unanimous approval, so this pact will not apply to nations that do not ratify it.  One would expect any country that requires a bailout, will have to enact the pact before funds would be available from the European Stability Mechanism (ESM) or bond support actions would be taken by the ECB.

The market is feeling top heavy, but the bulls don’t want to give up yet.  We expect the market to pull back from these levels before pushing higher, but it is all contingent on headlines out of Europe.  The ECB is poised to pump more money into banks this month in another three year loan program.  The liquidity is palatable.

We think it is time for investors to take some money off the table...so you don't find it "vaporized" on a market pullback!  Don't be greedy.

Quote:
I offer my opponents a bargain:  if they will stop telling lies about us, I will stop telling the truth about them.---Adlai Stevenson

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Archive

Back to Top