MF Global may have committed a crime by taking $200 million from segregated customer accounts "and used it to pay for bank overdrafts, shortfalls in other customer accounts and MF Global's own commodities activity," according to Vincent Schmeltz III, of Barnes & Thornburg, the lawyer for MF Global's customers, who are trying to get back their missing funds.
Another $1.0 billion of segregated customer accounts is still missing and unaccounted for according to the MF Global Trustee in bankruptcy. Many individual traders in precious metals and agricultural products were damaged by the bankruptcy. Farmers, ranchers and other agricultural business owners are missing funds they use to hedge the risks of volatile pricing.
Undoubtedly, Jon Corzine, the former CEO of MF Global, will be asked probing questions about the use of customer funds when he testifies before a Congressional committee later this week.
Schmeltz who represents James Koutoulas, the CEO of Typhon Capital Management, told me today that "customer segregated funds were commingled with securities accounts-- like a massive Ponzi scheme in which money for one customer is used to pay returns toother customers."
As I understand the regulations. MF Global was not allowed to commingle segregated customer accounts with its own firm positions or for other customers. It was meant to be segregated in the name of the owner. Today, the CFTC moved to tighten the rule to limit-- but not absolutely prohibit-- the use of segregated funds by the member firm.
To date, the Mf Global Trustee James Giddens, has announced that he is in the process of distributing $4.1 billion to the customers of MF Global, a process that will take several weeks.
