Photo: Lisa Du, Business Insider
It’s been a revealing two weeks in the case of the MF Global bankruptcy, yet it’s also safe to say that not much of progress has been made.Each piece of “breaking news” just piles on more confusion into the mess of numbers, bankruptcy hearing reports and angry client testimony.
What’s the variable here? The numbers keep evolving. Primarily, it’s because of atrocious record-keeping, it’s so bad that CFTC Scott O’Malia called MF Global’s books a “complete disaster.” Regulators are also pretty sure that client funds were commingled with company funds on purpose, so whatever fraudulent acts were committed only add to the chaos.
So the saga of the missing customer money continues, and at this point—there’s no clear estimate for the value of the shortfall in client funds.
The amount missing was first reported to be around $1 billion the day of the bankruptcy, but that figure continued to be revised down until it settled around $600 million.
Then last week, MF Global trustee James Giddens revealed that the shortfall may actually be double the original estimate—around $1.2 billion.
Now, DealBook is reporting that investigators have discovered that around $200 million of the client funds may have been moved to a JP Morgan account in the UK after the brokerage overdrew from its account in the last days before bankruptcy.
So does that make the client shortfall $800 million? Or still $1 billion if the $200 million from JP Morgan’s UK branch can’t be withdrawn because of British bankruptcy laws? No one is quite sure.
The latest shake-up of numbers, however, doesn’t have anything to do with the client shortfall that has been prevalent in headlines. It’s related to Corzine’s European bet—noted by many to be the move that brought MF Global down.
While MF Global’s last earnings report stated that they held about $6.3 billion in European sovereign debt, the actual value of the bonds they held was around $11.5 billion, Bloomberg reported this morning. The value was originally reported much lower because of MF Global’s use of short-term hedges.
There was something very risky buried in those hedges. Bloomberg points out:
The short-term hedges matured before the bonds, meaning the net amount at risk could increase if investors lost confidence in either European sovereigns or MF Global and new hedges couldn’t be bought.
Here’s the new rule for MF Global money: When you think you know, you really have no idea.