By Jim Kharouf, Editor-in-Chief

There isn’t much left out of the June 4th report from MF Global Trustee James Giddens “Report of the Trustee’s Investigation and Recommendations.” It’s a thorough 181 page (275 if you count all the charts and graphs at the end) Titanic journey of MF Global under Jon Corzine’s leadership. While much has been made of the report’s focus on Corzine, as well as chief financial officer Henri Steenkamp and assistant treasurer Edith O’Brien, who often and ultimately sent money to various places, this report is most valuable for its recommendations at the end.

Giddens recommends a number of changes, among them, that customer funds should be segregated, “regardless of whether they are invested domestically or overseas.” He adds that for overseas investments, funds and assets “be segregated to the maximum extent provided for under the stricter of U.S. law and applicable foreign laws and regulations as a condition to allowing funds to be held abroad.”

This is designed to address the shell game MF Global was playing with customer funds that were invested in overseas markets, and thus given a lighter regulatory touch.

Link to the report: http://jlne.ws/NcOJYp (PDF)

Press release from James W. Giddens, the Trustee for the liquidation of MF Global Inc.:

June 4, 2012 – New York, New York – James W. Giddens, the Trustee for the liquidation of MF Global Inc., today filed a report on his independent investigation into the failure of the broker-dealer with the United States Bankruptcy Court for the Southern District of New York, the Honorable Martin Glenn, presiding.

“As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity,” Giddens said. “My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions.”

“In light of these conclusions, I have determined there may be valid claims against individuals and entities. In my capacity as Trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others,” Giddens said.

The Trustee’s findings in the report are based on his counsel’s interviews of more than one hundred people, along with review of hundreds of thousands of documents, and an extensive forensic investigation conducted with the assistance of forensic accountants at Ernst & Young LLP.
Because the Trustee does not have law enforcement or regulatory authority, the report draws no conclusions about possible criminal liability or whether sanctionable regulatory violations occurred. The Trustee has been cooperating with the various law enforcement and regulatory agencies investigating MF Global’s collapse and does not wish to impede those efforts.

William Birdthistle is an associate professor of law at the IIT Chicago-Kent College of Law, where he specializes in investment funds, corporate governance and executive compensation. Birdthistle sat down with editor/producer Nicole V. Rohr and discussed the U.S. Securities and Exchange Commission’s (SEC) timeline for Dodd-Frank, how issues like corporate organizational structure and say-on-pay rules will progress in 2012, and how MF Global changed the landscape of corporate governance.

By John J. Lothian

“John is looking out for his self-interest,” said a reader.  “John must be out money,” said another.

It is often assumed that what motivates each of us is our own self-interest.  We could not take a breath without that being true.  We have to breathe.

I am not without self-interest.  However, my self-interest in the MF Global case is the best interests of my customers.  The customer comes first.  Always.  Ever.

As a futures broker for the last 22 years (and some before that), I am a customers’ man.  That is what the position used to be called; Customers’ Man.

By John J. Lothian

I believe in competition.

We need competition in regulation. Creating competition in the Self Regulatory Organization sector I believe should be part of the plan to restore customer confidence in our markets.

I started thinking about this as reports surfaced that the CME Group could be stripped of their Self Regulatory Organization status. There are some that believe, regardless of what happened or did not happen with the MF Global situation, that for-profit companies should not be SROs.  I am not judging that belief or the CME’s performance with MF Global. But I am thinking of what the future might look like and changes that could improve the perception AND performance of the industry.

By John J. Lothian

So far the number one voted-on question on FuturesCrowd.com is “The Number One Priority: Make the Customers Whole.”

I put that question on the site.  I have heard lots of people express this sentiment: that in order to restore customer’s confidence in the futures markets, those that are out money in the MF Global bankruptcy need to get the money back.  First that; then comes any changes in structure or industry plumbing in order to prevent future occurrences.

I did not suggest any particular mechanism for the clients getting their money back.  However, there is an idea that has been floated by several people and I have championed in private circles in order to accomplish this number one priority.  That idea is fronting insurance.

By John J. Lothian

When someone robs a bank and gets away with the money, they have something fungible (cash) and easily hid. While the authorities may be able to trace the serial numbers on the bills as they start to show up in circulation, there are no other official records for the physical bills to be traced.

The MF Global situation is different. Money is missing, like in a bank robbery, but the money all moved into and out of MF Global’s bank accounts where there are all kinds of physical and virtual records to trace the whereabouts and the end location of said funds.

There is a rational expectation that exchange regulators, market regulators, bank regulators, FBI investigators and Congressional investigators ought to be able to follow this chain of banking records to trace/discover where the money is. In fact, if they can’t, then this is a stinging indictment of our banking and brokerage system and God help us all.

Who wants to be a Millionaire?

By John J. Lothian

In the television game show “Who Wants to be a Millionaire,” contestants have 4 choices on how to answer the questions.  They can answer themselves, or if they don’t know the answer, they can use one of three lifelines to try to come up with the answer.

There are three types of lifelines that were used when I watched the Regis Philbin US version of the show: 50/50, Phone a Friend and Poll the Audience.

Each one of these lifelines has a unique approach to problem solving.  50/50 is purely probability based.  You get the increased probability of being successful by having 2 of the 4 answers removed from the choices.

Video of the initial “The Collapse of MF Global” hearing of the House Financial Services Subcommittee on Oversight & Investigations, plus links to written testimony. View Part 2 & Part 3.

Panel I

• Jon Corzine, Former Chairman & CEO, MF Global Holdings Ltd. (View written testimony - PDF)
• Bradley Abelow, President & COO, MF Global Holdings Ltd. (View written testimony - PDF)

This special report from the John Lothian Newsletter (subscribe here) includes the latest from the MF Global collapse, and the House Agriculture Committee meeting in which former MF Global CEO Jon Corzine made his first public appearance since leaving the firm several days after it filed for bankruptcy on October 31.

In the wake of the MF Global bankruptcy, John Lothian Newsletter has created a special section on JohnLothianNewsletter.com devoted to news, information and commentary. The section features archived news stories featured in the John Lothian Newsletter, analysis and breaking news. Check regularly for updates. See the MF Global news section here.