MF Global Roundup: Shortfall of $1.6 Billion

More money needed for claims being made.

Published on: Feb 17, 2012

James Giddens, the court-appointed trustee for MF Global, says that the gap between the funds under his control and the claims expected to be claimed by customers will be at least $1.6 billion. This estimate includes $700 million that was not included in earlier estimates that has been located in Great Britain. Giddens is in a legal dispute with administrators in London that are liquidating MF Global's British division.

Much of the earlier estimates of $1.2 million in missing funds have been located and traced to customer accounts and banks. So far Giddens has returned about $3.9 billion to customers.

Traders Holding Tight to Collateral

The collapse of MF Global has caused investors from fund managers to farmers to transfer out any extra money in their brokerage accounts, a practice known as 'sweeping'. It is an example of the damaged trust that has occurred following the MF Global failure. For the clients who haven't taken advantage of this, they are doing it more now," says Pauline Modjeski, president of Chicago-based Horizon Cash Management, which helps manage about $2.5 billion of cash on behalf of dozens of funds and traders. "As opposed to sweeping large cash balances once in awhile, we're sweeping large cash balances every day."

Investors Buying MF Global Claims

Former MF Global customers are being approached by investors offering to buy their claims for cash, but at a discount amount. The investment firms are betting that the trustee trying to recover an estimated $1.6 billion in customer assets will find and return more of the missing funds. Brokerage customers have already been reunited with 72% of the funds they lost access to at the time of MF Global's Oct. 31. Mr. Giddens has said that he faces challenges in getting back the remaining funds. Last week, he said he has traced a majority of the cash transactions made by MF Global during its final week in October, when a shortfall in customer accounts began to emerge. But he also said retrieving that money could be difficult and will involve "very complex legal and factual determinations."