Article orignally appeared in the November 21, 2011 edition of the Chicago Sun-Times.
By David Roeder Business Reporter
The trustee sorting out the bankruptcy of MF Global Holdings Ltd. on Monday doubled the estimate of possible lost funds in its customer accounts to $1.2 billion as CME Group Inc. came under intense criticism for its role in the debacle.
John Roe, co-founder of a coalition that’s working to document traders’ funds and get the money back through bankruptcy court, said, “CME bears a great deal of responsibility for what happened here.”
Roe, partner at BTR Trading Group, said Chicago-based CME should have arranged an orderly transfer of accounts once MF Global declared bankruptcy Oct. 31.
By not doing so, CME has “shaken the confidence” in the futures markets and opened itself to liability claims, he said.
“There will be a mushroom cloud of lawsuits forever” unless people get their money back, Roe said. Since the bankruptcy filing, Roe and many other traders have been locked out of accounts.
CME owns the Chicago Mercantile Exchange, Chicago Board of Trade and the New York Mercantile Exchange, where much MF Global business took place. It legally clears, or guarantees, the trading on its markets and often boasts that no customer has ever lost money because a trading firm failed.
That more than 100-year record may be in jeopardy with MF Global, one of the largest brokerages on the Chicago and New York commodity markets. Former New Jersey governor and Goldman Sachs Group Inc. chairman Jon Corzine led the firm but made a disastrous investment in European debt.
A CME spokesman declined to discuss specifics about its handling of the affair, but said the company is working closely with the bankruptcy trustee and federal regulators “to determine the facts regarding any shortfall of customer funds at MF Global.”
In other statements to traders, CME Executive Chairman Terrence Duffy and Chief Executive Craig Donohue said the company has acted diligently and within the law to get some accounts restored. CME also said it will pledge $50 million from its charitable trust to make customers whole and provide an additional $250 million guarantee to help get other funds released through bankruptcy court.
Roe, who leads a group called Commodity Customer Coalition, called the guarantee paltry.
He and other MF Global clients have been frustrated that Trustee James Giddens hasn’t agreed that customer funds should get special priority before creditors’ claims.
Giddens issued a statement that estimated the shortfall at $1.2 billion, double the previous $600 million estimate from federal regulators. He emphasized that the estimate may change and said it will take time to access money held by foreign bankruptcy trustees.
A $1.2 billion shortfall would be about 22 percent of the assets in customer accounts that MF Global was required to keep separate from its own investments.
A hearing in the bankruptcy is scheduled for Tuesday in New York. Criminal investigations of the company are ongoing.