MF Global Shortfall Could Be Over $1.2 Billion

The shortfall of customer funds at MF Global may be around $1.2 billion, twice the initial estimates from regulators, according to the trustee liquidating the company.

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Trustee James Giddens said in a statement on Monday that the amount of money MF Global should have segregated for customers may be short by “$1.2 billion or more.” He added that the figure could still change.

Giddens had control of about $1.6 billion of the firm’s funds, which he said he can use to pay back customers whose accounts were frozen when MF Global filed for Chapter 11 on October 31. Giddens plans to pay back 60% of customer funds by early December, nearly all of the funds over which he now has control.

Regulators initially said MF Global’s shortfall was about $600 million, a fact that came to light when the company filed for Chapter 11 bankruptcy protection after revealing it had made a $6.3 billion bet on European sovereign debt.

Though customers have criticized Geddens efforts, asking for quicker access to a higher percentage of their accounts, the trustee has argued that the slow, piecemeal approach is necessary until he can accurately gauge the size of the shortfall.

“Restoring 60 percent of what is in segregated customer accounts…would require approximately $1.3 to $1.6 billion to implement,” said Giddens.

Giddens has already transferred more than $2 billion to other brokers, giving most customers access to a portion of their funds.

MF Global is currently under investigation by the Commodity Futures Trading Commission and other regulators, as well as the U.S. Attorney’s Offices in New York and Chicago. Among other points of inquiry, they are investigating whether the shortfall may be the result of MF Global improperly co-mingling customer money with its own funds.

CFTC Commissioner Jill Sommers has refused to speculate as to the size of the shortfall, saying that, “Until the final reconciliation [of accounts] is done, you don’t know what the shortfall is.” Sommers has been leading the agency’s investigation into MF Global since Chairman Gary Gensler recused himself because of ties to Jon Corzine, who resigned from his position as CEO of MF Global on November 4.

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John L. Roe, a spokesman for the Commodity Customer Coalition in Chicago, which represents more than 7,000 of MF Global’s former customers, is hopeful that “more of the money will be found, and that the trustee will work with us on an expedited claims process for customers,” adding that some of the missing money could be tied up overseas.