Did CME Know About MF Global Misdeeds?

A new chapter in the MF Global story emerged on Thursday as the Commodities Futures Trading Commission said it is now investigating the activities of the CME Group (NASDAQ:CME). The exchange was the main venue where the bankrupt firm conducted its business and acted as its primary regulator.

The CFTC is focusing on CME’s conduct in the days prior to MF’s bankruptcy filing on October 31, according to The New York Times, and “whether CME’s efforts to verify the safety of customer money were sufficient.” CME believes MF Global may have purposely created inaccurate documents for customer accounts.

Should the CFTC find the exchange failed to meet the standards of a self-regulatory organization, it could do a few things. The agency could fine or sanction CME or revoke its self-regulator status–although this is a rare occurrence by the government to hand down sanctions against a self-regulatory body, wrote The New York Times. The exchange has not been accused of doing anything wrong and is currently under CFTC review.

In a statement by CME, a spokeswoman said, “Given the issues involved, we welcome and expect the C.F.T.C.’s investigation as a natural part of this process. We are confident the C.F.T.C.’s review will determine we did everything right within our regulatory power. The system did not fail; the firm broke the law by misusing customer funds.”

Trustee Will Not Provide Documents

In another case development that came on Friday, Louis Freeh, ex-Federal Bureau of Investigation director and MF Global’s bankruptcy trustee, said he will not provide the CFTC with some documents that could help them resolve what transpired with the missing customer funds, estimated at $1.2 billion.

Freeh, representing MF’s parent company, utilized the attorney-client privilege to not release the documents, reported the Wall Street Journal. The CFTC is helping with the investigation to determine what happened to the missing firm customer funds.

With the refusal to provide documents, the CFTC believes this could slow down the investigation. They have not commented on Freeh’s failure to provide documents but his office provided the following statement:

“To the extent that the authorities express concerns to us that the effort to preserve the attorney-client privilege is hampering their investigations, we, of course, would be willing to discuss the issue with them and would be inclined to waive” the privilege.”

To contact the reporter on this story: Debbie Baratz at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com