MF Global Holdings Ltd., formerly known as Man Financial, was a major global financial derivatives broker, or commodities brokerage firm that went bankrupt in 2011. MF Global provided exchange-traded derivatives, such as futures and options as well as over-the-counter products such as contracts for difference (CFDs), foreign exchange and spread betting. MF Global Inc., its broker-dealer subsidiary, was a primary dealer in United States Treasury securities. A series of perceived liquidity problems and large fines and penalties dogged MF Global starting in 2008, and led to its bankruptcy in 2011.
In 2011, MF Global faced major pressures to its liquidity over several months. Some analysts and financial commentators indicate that MF Global probably experienced a number of trading days in 2011 during which the firm's bets on sovereign debt would have required the use of customer funds to meet capital requirements, thereby maintaining operating funds and possibly overall solvency. A large part of these pressures on MF Global were a result of the firm's involvement in a significant number of repurchase agreements. Many of these repo agreements were conducted off their balance sheet. Also, MF Global made a $6.3 billion investment on its own behalf in bonds of some of Europe's most indebted nations. Failure of those, and other repo positions, contributed to the massive liquidity crisis at the firm. MF Global experienced a meltdown of its financial condition, caused by improper transfers of over $891 million from customer accounts to a MF broker-dealer account to cover losses created by trading losses.
On October 31, 2011, MF Global executives admitted that transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global's U.K. subsidiary to cover (or mask) liquidity shortfalls at the company occurred on October 28, 2011. MF could not repay these monies with its own funds. Improper co-mingling, or mixing, of company and client funds took place for days before the illicit transfer and loans, and perhaps for many other days earlier in the year. According to the New York Times, "MF Global dipped again and again into customer funds to meet the demands", perhaps beginning as early as August 2011.[2]
MF Global declared bankruptcy on October 31, 2011, and the company was liquidated beginning in November 2011.[3] The trustee liquidating the company said that the losses incurred by customers of MF Global stood at $1.6 billion at April 2012.[4][5] In January 2013, a judge approved a settlement that would return 93 percent of customers' investments, with the prospect of additional payouts from the company's general estate.[6][7] In December 2014, MF Global Holdings settled a U.S. government lawsuit, agreeing to pay $1.2 billion in restitution and a $100 million fine for customer losses tied to the company's 2011 collapse.[8]
History
Origins
MF Global traces its roots to the sugar trading business started by James Man in England in 1783, which evolved into broader commodities trading before its later transformation into a financial services business during the 1980s focused on commodity futures trading.[9]
The 1900s: Growth, diversification
MF Global's former parent, then known as ED&F Man, diversified from pure cash commodities into commodity futures in the late 1970s, and established the Anderson Man futures brokerage in 1981. It later changed its name to "ED&F Man International" and then "Man Financial". ED&F Man operated as a partnership through to the 1970s, when it started an international expansion which, by 1983, increased its staff 650 employees. ED&F Man listed on the London Stock Exchange in 1994, changing its name to "Man Group" in 2000. Its agricultural business, which retained the ED&F Man name, was sold to management the same year.
The 1980s-Early 2000s: Acquisitions, expansion and brokerage unit growth
The looming crisis, bankruptcy and collapse
October 2011: MF Global bankruptcy and customer funds shortfall
On Sunday, October 30, 2011, a unit of the New York-based brokerage first reported to the Chicago Mercantile Exchange (CME) and the Commodity Futures Trading Commission (CFTC) a "material shortfall" of hundreds of millions of dollars in segregated customer funds. Customer accounts were frozen the same day.
On October 31, 2011, MF Global reported the shortfall in customer accounts at $891,465,650 as of close of business on Friday, October 28, 2011.[22][23] According to the trustee overseeing liquidation the shortfall may be as large as $1.6 billion.[24][25][26]
Corzine's possible role in the firm's collapse
Some prominent financial industry executives, journalists, regulators, politicians - and some MF Global clients - lay the blame for the demise squarely, and primarily, at Corzine's feet. On the day of MF Global's bankruptcy, a Bloomberg reporter wrote "Jon Corzine's risk appetite helped destroy his firm. It also provided an object lesson for Paul Volcker's campaign against proprietary trading on Wall Street."[61]
Many sources indicate Corzine was heavily involved with the sovereign debt trades that led to the company's demise, indicating the firm took on the positions at his urging as CEO and chairman.[62][63]
Structured-finance commentator Janet Tavakoli has alleged that Corzine's MF Global likely had a number of days in 2011 in which the company's bets on sovereign debt would have required the use of customer funds to meet capital requirements, thereby maintaining operating funds and possibly overall solvency.[64] The New York Times reported as of December 2011 "investigators are now examining whether MF Global was getting away with such illicit transfers as early as August ... a revelation that would point to wrongdoing even before the firm was struggling to survive."
Further reading
- United States. Congress. House. Committee on Financial Services. Subcommittee on Oversight and Investigations. The Collapse of MF Global: Hearing before the Subcommittee on Oversight and Investigations of the Committee on Financial Services, U.S. House of Representatives, One Hundred Twelfth Congress, First Session, Pt.1-3. Washington, D.C.: U.S. G.P.O., 2012.
- United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. The Collapse of MF Global: Lessons Learned and Policy Implications: Hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Twelfth Congress, Second Session. Washington, D.C.: U.S. G.P.O., 2013.
- Orol, Ronald D., "Corzine caused MF Global failure, House panel says", MarketWatch, November 14, 2012.
- Weidner, David, "Corzine blundered at MF Global, but how? Commentary: House report focuses on strategy, not customer funds", MarketWatch, November 14, 2012.
- Orol, R. D., "CFTC floats post-PFG, MF Global protections"
External links
- MF Global.com
- Home
- MF Global FX Clear LLC
- The Astonishing Collapse of MF Global; The Motley Fool; December 16, 2011.
References
- LinkedIn Companies MF Global^
- Azam Ahmed, Ben Protess, Susanne Craig. A romance with risk that brought on a panic The New York Times, 2011-12-11^
- MF Global Chapter 11 Petition PacerMonitor, retrieved 9 June 2016^