MF Global Report: Full Recovery Still Iffy
AllAboutAlpha | Nov 20, 2012 12:57AM ET
According to an European sovereign bonds and use them as collateral in repurchase-to-maturity transactions (RTMs) as a revenue raising operation.
Beginning in September 2010, MF Global expanded its RTM position. Just weeks before the company collapsed, the net position on European sovereign debt was $6.3 billion. The three big factors that led to the collapse, then, were “MF Global’s belated disclosure of its extensive European RTM portfolio, its inability to meet increasing liquidity demands, and its lack of internal controls,” the report says.
MF Global’s insolvency became obvious on the weekend of October 29-30, 2011. The Commodities Futures Trading Commission set a deadline of the 30th, Sunday, 1 PM, on which MF Global was to provide that agency with information on its customer segregated funds.
But almost two hours after the passage of that deadline (at 2:57 PM) CFTC staffer Melissa Hendrickson would email her superiors that the information still wasn’t ready, apparently the MF Global staff were working furiously to compile it.
Two minutes later, (2:59), the Chief Counsel, Division of Clearing and Risk, CFTC, emailed Melissa Hendrickson to say, “This is NOT good.”
One minute after that, (3:00), CFTC staff at the Chicago office of MF Global saw a draft of its customer segregated funds statement. The funds that were supposed to all be accounted for … weren’t. CFTC informed CME Group of the shortfall.
Blame the Bookkeepers
By 7 PM, the MF Global staff was telling CFTC and the CME that the shortfall was an “accounting error.” But nobody, in the course of what it seems was a frantic evening, could identify any error that would explain this discrepancy.
By 12:40 AM Monday, October 31, a member of CME’s audit team was emailing colleagues that Christine Serwinski, MF Global’s CFO for North America, would “look into coming up with additional funds to transfer into segregation as a contingency,” if the accounting explanation continued to be elusive.
MF Global had over the previous days been seeking to sell itself to Interactive Brokers, but on Monday, when it told IB about the customer shortfall, IB ended those discussions, and MFG had no choice left but to file for bankruptcy court protection.
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