BANKRUPT US broker MF Global flouted rules on keeping client and company funds in separate accounts, the head of the Chicago Mercantile Exchange claimed yesterday.
Under rules set by the CME and the Commodities and Futures Trading Commission (CFTC), companies must hold client assets separately from those belonging to the company, but the exchange said preliminary investigations had revealed shortfalls in some of MF’s customer accounts.
“CME has determined MF Global is not in compliance with CFTC and CME customer segregation requirements,” said the exchange’s chief executive Craig Donohue.
It is not yet clear whether any client money is missing or the apparent shortage is the result of bookkeeping errors.
MF Global’s lead attorney, Ken Ziman, said all of the funds in the company’s broker dealer are accounted for. To management’s best knowledge, “there are no shortfalls” in brokerage accounts, he said in court.
The firm, led by ex-Goldman Sachs boss Jon Corzine, filed for bankruptcy protection in the US on Monday.
The previous week its stock and rating had been hit by huge losses on bets made on Eurozone sovereign debt, and it was forced to turn to Chapter 11 proceedings when attempts over the weekend to find a buyer failed.
Work has already begun in the UK to close out creditor positions related to MF Global’s British arm, the first to be processed through the new Special Administration Regime.
Sources close to the administrators told City A.M. they had been fielding calls all yesterday from worried clients.
MEET THE LAWYERS
WEIL GOTSHAL & MANGES
LAW firm Weil Gotshal & Manges has been appointed as legal adviser to the administrators to MF Global in relation to its UK operations, having applied late on Monday for the appointment of KPMG partners Michael Pink, Richard Fleming and Richard Heis to the role.
The Weil Gotshal team will be led by restructuring head Adam Plainer, who has been advising creditors on the unwinding of several of the structured investment vehicles (Sivs) that went into receivership.
Plainer was locked in board meetings yesterday afternoon, but via email called the case “truly groundbreaking”.
He will be supported on the case by 12 Weil lawyers, as well as by Martin Pascoe QC and Daniel Bayfield, both members of 3-4 South Square chambers.
Much of Bayfield’s recent work has been advising the administrators to Lehman Brothers’ European operations – the bankruptcy that led UK regulators to introduce the Special Administration Regime that the MF Global case will test.
The FSA is being advised by a multi-disciplinary team from Ashurst, including litigation partner Edward Sparrow, restructuring partner Giles Boothman and regulatory partner Rob Moulton.