Photo: Business Insider
Yes, there’s still around $600 million missing MF Global’s customers’ funds, client accounts are still frozen and now Bloomberg is reporting that the money may never get back to the customer.Former MF Global clients – which included individuals, investment firms, banks, etc – should be mad.
But the reason why they’re so angry is because this wasn’t suppose to happen — even in the case of a bankruptcy. There is law that stipulates customer segregated accounts at futures merchants like MF Global must be released or moved immediately following a bankruptcy, a commodity trading advisor (CTA) who preferred to remain anonymous told Business Insider. (This is the CFTC law the CTA is referring to.)
And so, some customers stayed with MF Global even when it looked like the company was going to crash and burn – because they expected a routine process where their accounts would be moved within days. That’s not the case anymore – once news of the missing funds surfaced, the court-appointed trustee handling MF Global’s bankruptcy froze all client accounts.
Business Insider recently spoke to two MF Global clients who have been affected by frozen accounts. One client – the CTA who did not want to be named, owns an advisory firm that has ceased operations because all her clients used MF Global and now can’t access their money. The other, an independent investors wished to go by his last name, Patel, said he had about $1.5 million with MF Global.
Both the female CTA and Patel said they were not worried about their accounts because of past precedent.
Patel said he had gone through a “seamless transition” when futures brokerage Refco went bankrupt in 2005, so he wasn’t worried amid all the drama surrounding MF Global in its last days.
The female CTA expressed similar sentiments, until bankruptcy Monday came around. She describes her experience:
“At first, as I heard, I was quite relaxed because I thought we’ve been through this a number of times in the industry. Usually the client has the opportunity to move the accounts – it just gets moved. [But] I knew on Monday something was fishy when they turned off my terminal… Later in the day when funds were frozen – that had never happened before. And then I knew then we were in trouble, because things were not happening in the way they were suppose to happen in this event. This was unprecedented. And then there was liquidation only, and what was worse – there was only one number you could call to liquidate. Imagine 50,000 accounts with one number.”
In addition to her clients’ funds, the female CTA also had money at MF Global. She said she transferred over $100,000 just two weeks ago because “the industry sold itself to the public as safer than a bank.” She has not taken any trading positions with her money. Furthermore, the CTA told Business Insider that three of her European clients have told her they never want to do business in the US markets again because of this fiasco.
About 150,000 MF Global client accounts were frozen after the discovery of the missing funds. Of that 150,000, only 50,000 are believed to be active, a spokesperson for the trustee told the Wall Street Journal. In the 50,000 accounts, 17,000 had taken positions on trades and 33,000 held cash or cash equivalents, according to the WSJ.
The accounts that were linked to trades have been transferred haphazardly – only about 75% of the required collateral was moved and new brokers are asking customers to put up more money to secure their positions, which some customers have been unable to do because of personal monetary restraints. In addition, all of the cash-only accounts – also containing money from customers who had liquidated their trades before MF Global went bankrupt in hopes of an easier transfer of money – are still completely frozen, according to the WSJ.
For Patel, that is especially troubling – he describes himself as a “conservative investor” who had excess equity to back up his trades in his accounts – but now, the steps he had taken to avoid risk has backfired and his money is frozen.
The waiting continues. There are reports that clients money might be split “pro rata” if the $600 million is never found. Patel said he was “speechless and in shock” at this prospect. The CTA said she feels cheated – and is worried that her frozen money might get thrown into a pot that MF Global creditors – big banks such as JP Morgan – could also access and take.
The unnamed CTA said she’s taken to activism now that she can no longer do business. She’s sent letters to several members of Congress. She said she put most of the blame on the trustee, who froze money in the first place.
“It was like being in the twilight zone,” she said. “Segregated accounts are secured even in bankruptcy, and it all turned out to be one big fat lie.”