The amounts of customer funds missing from MF Global have multiplied from $633 million to $1.2 billion yesterday-- and now $1.7 billion today, according to Vincent (Trace) Schmeltz III , the attorney for the 80 member Commodity Customers Coalition. Schmeltz is a member of the Barnes & Thornburg law firm in Chicago
This new figure is the result of the inability by the Trustee and the CME (the Chicago Mercantile Exchange) to find more than $3.7 billion in customers funds rather than the $5.4 billion projected just after MF Global filed for bankruptcy on October 31.
Apparently, on October 31, the CME reported segregated funds totalled $5.4 billion. The next day-- on November 1st, the CME suggested that $633 million was lost and unaccounted for. But, by yesterday, November 21, the Trustee reported that he could find only $3.7 billion in assets. Neither Schmeltz nor Koutoulas can understand why the CME declared only $1.2 billion missing yesterday-- because if only $3.7 billion has been found of the original $5.4 billion segregated accounts-- this suggests that the missing amount of segregated funds now totals $1.7 billion.
Both Schmeltz and James L. Koutoulas, the 30 year old CEO of Typhon Capital Management, told me at breakfast this morning that they have been told that as early as August MF Global was reported to be using segregated customers accounts to "meet margin calls" and bolster their trading positions.
However, it is not known if the segregated accounts were actually transferred MF Global's books-- which would be a violation of the CFTC regulations. One possible explanation for the missing funds is that MF Global grew by acquisition and never fully integrated their bookkeeping systems, Schmeltz told me at breakfast.
There have been many ramifications from the MF Global scandal. For one thing, the market capitalization of the CME shares have declined by several billion dollars. The volume of trading on some regional commodity exchanges has declined significantly.
That is because many commodity brokers are missing significant funds from the $1.7 billion that can't be found. Typhon Capital, for example, is missing $55 million.
The unsecured creditors of MF Global are headed by JP Morgan Chase, which lent the firm over $1 billion, Goldman Sachs, Harris Trust and other banking concerns. Some of the MFG customers who are missing money are furious that Hughes Hubbard, a law firm that has represented JP Morgan in the past, is the legal representative of the Trustee in bankruptcy.
"This is another example of Wall Street favoring Wall Street over Main Street," Koutoulas told me this morning.
Even amidst all this confusion about MF Global's segregated accounts, distress investors have been paying 85 cents on the dollar for claims against MF Global, 30 cents on the dollar for MF Global's publicly traded bonds, and 9 cents a share for the firm's common stock.
Schmeltz and Koutoulas will be the guests of Bloomberg TV's Margaret Brennan this morning.
