Bigger Than Solyndra: Over Half a Billion in Customer Funds Disappear Under Obama’s Top Wall Street Finance Man
November 1st, 2011
Making news in the last few days is the collapse of MF Global, one of the handpicked elite primary dealers that serve as trading counterparties of the New York Fed in its implementation of monetary policy. Primary dealers are supposed to be heavily regulated and monitored, as they are required to participate in Treasury auctions. As of October 31, there were 21 primary dealer club members including the likes of behemoths that include JP Morgan, Citigroup, Goldman Sachs, and Morgan Stanley.
What you may not know about MF Global and why it is important is that they are not only a primary dealer, but also a broker-dealer, which means they trade securities on behalf of their customers. Yesterday, they filed for bankruptcy, making them the 8th largest bankruptcy in U.S. history, to the tune of $40 billion.
It turns out that as of this morning, there is about $700 million of customer funds that have disappeared.
The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.
Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.
The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said.