The top regulator tasked with overseeing the bankrupt brokerage firm MF Global said Thursday that the search continued for more than $630 million in missing customer money, warning that the protection of client assets is essential to doing business on Wall Street.
Gary Gensler, chairman of the Commodity Futures Trading Commission, said his agency was investigating the firm, a powerhouse commodities brokerage run by a former New Jersey governor, Jon S. Corzine.
“The most troubling aspect about the MF Global situation is the shortfall of customer money at the firm. Segregation of customer funds is the core foundation of customer protection in the commodity futures and swaps markets,” he said in prepared testimony. “Segregation must be maintained at all times. Simply put, that’s every moment of every day, down to the nanosecond.”
Mr. Gensler added that taxpayers aren’t on the hook for MF Global’s bankruptcy.
Joshua Roberts/Bloomberg NewsThe Commodity Futures Trading Commission, led by Gary Gensler, is said to have become concerned in late October.
“This was an example of a financial institution having the freedom to fail,” he said in response to questioning from Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations. “I don’t think there’s any taxpayer money behind this.”
A basic tenet of the brokerage business requires that money handed to the firm by one customer is not mixed with the firm’s own money. MF Global filed for bankruptcy on Monday after weeks of anxiety weighed on the firms stock and liquidity. Investors were spooked by the revelation of an outsize bet Mr. Corzine had placed on European sovereign debt, a risky trade given the uncertainty clouding the Continent.
The exposure prompted regulators to force MF Global to set aside more cash as a cushion in the event of losses, and helped persuade Moody’s rating agency to downgrade the firm. That set in motion a week of panic, where it drew down its credit line and lenders demanded extra cash to protect themselves. MF Global had hoped to orchestrate an 11th-hour deal to sell a piece of itself, but those hopes were dashed when the money came up missing. It is unclear where the money went.
Mr. Gensler first spotted a potential shortfall late last week, calling MF Global’s lawyer to alert the firm. But it was not until around 2 a.m. Monday that the firm fully recognized the magnitude of the missing money. The disclosure sent bidders fleeing and the firm had no choice but to file for bankruptcy.
Article source: http://feeds.nytimes.com/click.phdo?i=df226e720e3079b481e05bf48cefc365
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