JPMorgan Chase is in talks with the authorities to turn over customer money that disappeared from MF Global when the firm went bankrupt last year.
The development, announced this week by the trustee tasked with returning money to MF Global customers, suggests that a substantial sum of client funds is still sitting at JMorgan. The statement from the trustee, James W. Giddens, said that he and JPMorgan “are presently engaged in substantive discussions regarding the resolution of claims.”
If the talks break down, Mr. Giddens could sue JPMorgan to recover the customer cash. But the case could take years to wind through the courts, delaying the return of money to clients, who are still owed about $1.6 billion.
The trustee’s announcement came after a five-month “investigation of the actions of JPMorgan,” regarding the bank’s “activities in connection with MF Global,” the statement said. The trustee noted that JPMorgan has cooperated with the investigation. The trustee’s team of lawyers and forensic accountants have interviewed witnesses and traced the outflow of customer money from MF Global.
A JPMorgan spokeswoman declined to comment.
As MF Global’s main bank, JPMorgan was heavily involved in the brokerage firm’s final days last October. It helped the firm sell off assets and process a flurry of transactions in an effort to stave off collapse.
It also received hundreds of millions of dollars in MF Global’s customer money, according to people briefed on the matter. One significant misuse of customer money came on Oct. 28, MF Global’s last day of business, after the firm overdrew an account at JPMorgan in London. When MF Global learned of the overdraft, it transferred $175 million in customer money, perhaps inadvertently, to patch the hole.
Authorities investigating the collapse of MF Global also suspect that JPMorgan received customer assets as it helped MF Global sell commercial paper and other securities to an array of other Wall Street firms.
But there is some dispute over how much money JPMorgan must return to customers. The bank is a leading creditor in MF Global’s bankruptcy, and it is itself owed tens of millions of dollars. It is unclear how much customer money remains at the bank.
The missing money belongs to clients who traded in the futures market — investors like farmers and hedge funds. The trustee has returned about 72 percent of their money.
Money from customer trading in futures accounts went to a number of other destinations, aside from JPMorgan, including clearinghouses and MF Global’s securities customers, the people briefed on the matter have said. About $700 million is also trapped overseas.