Neither Corzine nor MF Global have been charged with wrongdoing.
Clik here to view.
Former New Jersey Gov. Jon Corzine heads out of the Assembly Chamber in Trenton after delivering his final State of the State address on Jan. 12, 2010. He now finds himself in the middle of a financial firestorm after the Wall Street firm he has been leading has collapsed.MF Global Holdings, the futures firm run by former Gov. Jon Corzine that declared bankruptcy this week, has violated federal requirements for segregating customer accounts, the operator of the Chicago Mercantile Exchange said today.
"CME has determined that MF Global is not in compliance with (Commodity Futures Trading Commission) and CME customer segregation requirements," Craig Donohue, CEO of the CME Group, said in prepared remarks for a conference call with analysts.
"While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure," he said. "We are working with the CFTC and will be contacting the trustee to facilitate the transfer of customer positions and a portion of the supporting collateral."
Meanwhile, the Associated Press and Wall Street Journal reported that an official from the firm told federal officials it had diverted client funds. Both reports cited anonymous sources. And NBC News reported federal prosecutors and the FBI are set to join the inquiry into what happened at MF Global.
Neither Corzine nor MF Global have been charged with wrongdoing. An MF Global spokeswoman did not return calls and a Corzine spokesman declined to comment.
Futures firms and brokerages are under strict requirements to keep customer cash separate from assets controlled by the firm and in trust fund-like bank accounts that cannot be touched except in special circumstances.
QUESTIONS REMAIN
It is unclear how significant the alleged violation cited by the CME may be. "The (alleged) violation could be technical or it could be serious. The more serious is that someone has stolen money," said Jerry Markham, a law professor at Florida International University and a former chief counsel for the CFTC’s Enforcement Division.
"I would read that as pretty serious," he said, adding that he was surprised by the announcement because regulators typically will not allege a violation during an ongoing investigation. "My concern is, from this announcement, there is a shortfall in customer accounts."
The Wall Street firm informed regulators of "possible deficiencies in customer futures segregated accounts held at the firm," the CFTC and the Securities and Exchange Commission said in a joint statement Monday. Customer futures segregated accounts are not backed by the Federal Deposit Insurance Corp. or the Securities Investor Protection Corp., Markham said, although there are other mechanisms to recover customer assets.
Clik here to view.
The Jon Corzine-led MF Global has filed for bankruptcy after reportedly making bets on European debt for some of the most troubled countries, becoming the first U.S. financial company to be casualty of the European debt crisis. Corzine was formerly the Goldman Sachs chairman and Governor of New Jersey. MF Global Holdings and MF Global Finance filed for bankruptcy Monday, the eighth largest in U.S. history, after a week in which its share price pummeled over news it suffered a record quarterly loss, had a $6.3 billion exposure to troubled European sovereign debt and subsequent downgrades by rating agencies to junk status. The bets on European debt were made under the watch of Corzine, who joined the firm March 2010 in a bid to turn it into a powerhouse investment bank.
It emerged Monday night that regulators are investigating whether hundreds of millions of dollars are missing from client accounts. A federal official told The Star-Ledger authorities want to know if the missing money is a bookkeeping error or if MF Global improperly shifted client funds.
An attorney for the firm, Kenneth Ziman, said at a bankruptcy hearing today that the firm has accounted for all assets, Bloomberg News reported. "To the best knowledge of management, there is no shortfall," he told U.S. Bankruptcy Judge Martin Glenn.
This is not the first time MF Global fell afoul of its regulators.
The Financial Industry Regulatory Authority, a brokerage industry-funded regulator, "demanded" MF Global’s disclosure last week that it held $6.3 billion short-term sovereign debt in some of Europe’s most troubled economies, MF Global said in a Monday bankruptcy filing. FINRA had been "dissatisfied" with a previous announcement the firm made about the debt and the resulting orders it was under to increase its net capital cushion, the firm said.
A FINRA spokeswoman declined to comment.
Four New Jersey firms ranked among MF Global’s top-50 unsecured creditors, according to its bankruptcy filing.
ForwardThink Group, a Manalapan-based consultancy, is owed $278,825; Technology Managemant Consulting Group, a Lakewood firm that that does business as Roadmap Learning, is owed $34,000; Synechron, an information technology outsourcing provider in Piscataway, is owed $29,740; and Ticker Consulting in Cedar Knolls is owed $22,800. Officials from the firms either did not return calls, could not be reached or declined to comment.
Related coverage: