The torrent of disturbing information arising from the implosion of futures commission merchange MF Global, Inc. continued today when it was revealed that MF Global was “not in compliance” with rules that prohibit brokerage firms from commingling client funds with their own monies. The head of the Chicago Mercantile exchange said Tuesday confirmed that MF Global was not in compliance and stated as follows: “While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure.”
This new disturbing information has given rise to rampant speculation that MF Global diverted customer funds in order to meet margin calls arising from its own losing proprietary trades in European debt instruments.
This news came only one day after the Securities Investor Protection Corporation (SIPC) initiated the liquidation of MF Global Inc., under the Securities Investor Protection Act (SIPA) and filed an application with the United States District Court for the Southern District of New York for a declaration that the customers of MF Global Inc. are in need of the protections available under the SIPA.
Orlan Johnson, board chairman of the Securities Investor Protection Corporation (SIPC), reportedly said: “When the customers of a failed SIPC member brokerage firm have left their securities in the custody of that firm, SIPC acts as quickly as possible to protect those customers. In this case, SIPC initiated the liquidation proceeding within hours of being notified by the SEC that a SIPC case was necessary to protect the investing public.”
The Securities and Exchange Commission and the Commodities Futures Trading Commission issued a joint statement stating in part as follows:
For several days, the SEC, CFTC and other regulators had been closely monitoring developments affecting MF Global, Inc., a jointly registered futures commission merchant and broker-dealer, in anticipation of a transaction that would include the transfer of customer accounts to another firm. Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets.
If MF Global deliberately diverted customer funds, this conduct may give rise to claims under the Commodities Exchange Act on behalf of customers whose funds were diverted. Investors who lost money in MF Global securities may also wish to consult an attorney concerning possible claims. To date, apparently no class actions have yet been filed.
Investors who believe that they bought MF Global securities (including a bond issue that occurred during August 2011) without being fully informed concerning MF Global’s business condition, risk profile and proprietary trading exposures may wish to consider consulting an attorney to explore whether they may have a viable claim. Investors who believe their money held in MF Global accounts may have been diverted may also have viable claims. Investors may contact the Law Office of Christopher J. Gray, P.C. for a confidential, no-cost consultation.