HUGHES HUBBARD & REED LLP 

One Battery Park Plaza 

New York, New York 10004 

Telephone: (212) 837-6000 

Facsimile: (212) 422-4726 

Attorneys for James W. Giddens, 

Trustee for the SIPA Liquidation of MF Global Inc. 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK

In re 

MF GLOBAL INC., 

Debtor. 

Case No. 11-2790 (MG) SIPA 

TRUSTEE’S PRELIMINARY REPORT ON STATUS OF HIS INVESTIGATION AND 

INTERIM STATUS REPORT ON CLAIMS PROCESS AND ACCOUNT TRANSFERS
2 

1. James W. Giddens (the “Trustee”) as trustee for the liquidation of MF 

Global Inc. (“MFGI”), respectfully submits this preliminary report on the progress of his 

investigation and interim status report on the claims process and account transfers, in accordance 

with his duties under sections 78fff-1(c) and (d) of the Securities Investor Protection Act 

(“SIPA”), 15 U.S.C. §§ 78aaa et seq., and in accordance with the suggestion of the Court that the 

Trustee prepare reports on a more frequent basis than a six-month formal reporting period (Hr’g 

Tr., Nov. 22, 2011, ECF No. 423). 

2. As the Court is aware, on October 31, 2011, the Honorable Paul A. 

Engelmayer, United States District Court Judge for the Southern District of New York, entered 

an Order (the “MFGI Liquidation Order”) commencing liquidation of MFGI pursuant to the 

provisions of SIPA in the case captioned Securities Investor Protection Corp. v. MF Global Inc., 

Case No. 11-CIV-7750 (PAE). 

3. The MFGI Liquidation Order, inter alia: (i) appointed James W. Giddens 

as Trustee for the liquidation of the business of MFGI pursuant to SIPA section 78eee(b)(3); 

(ii) appointed Hughes Hubbard & Reed LLP counsel to the Trustee pursuant to SIPA section 

78eee(b)(3); and (iii) removed the case to this Court as required for SIPA cases by SIPA section 

78eee(b)(4). 

INVESTIGATION

4. The Trustee’s investigation has preliminarily determined that MFGI had a 

shortfall in commodities customer segregated funds beginning on Wednesday, October 26, 2011, 
3 

and that the shortfall continued to grow in size until the bankruptcy filing on Monday, October 

31, 2011.1

 

5. The Trustee’s investigators have now traced a majority of the cash 

transactions, totaling more than $105 billion, made in and out of MFGI in the last week before 

bankruptcy and are completing the process of tracing the remaining transactions. MF Global 

also executed securities transactions totaling more than $100 billion during its final week of 

operations. These included liquidation of customer securities, proprietary positions and other 

items. The securities included complex instruments, such as off-balance sheet repurchase 

transactions involving sovereign debt securities and derivative structures. 

6. For three months the Trustee’s investigative team has worked to 

understand what happened during the final days of MF Global when cash and related securities 

movements were not always accurately and promptly recorded due to the chaotic situation and 

the complexity of the transactions. With these preliminary investigative conclusions in hand, the 

Trustee’s investigative team will analyze where the property wired out of bank accounts 

established to hold segregated and secured property ultimately ended up. The Trustee will then 

determine whether there is a sound and legal basis for recoveries against third parties that will 

help make customers whole. These will be very complex legal and factual determinations, which 

the Trustee will make consistent with his duty as the advocate for the former customers of 

MFGI. 

 

1 This preliminary report on the progress of the Trustee’s investigation is supplemented by slides that are annexed 

as Appendix A. 
4 

7. The investigation to date has found that transactions regularly moved 

between accounts and that funds believed to be in excess of segregation requirements in the 

commodities segregated accounts were used to fund other daily activities of MF Global. In the 

past, such transfers were in amounts of less than $50 million, but as liquidity demands increased 

and could not be met from internal sources, much larger amounts were used, apparently with the 

assumption that funds would be restored by the end of the day. By Wednesday, October 26th, as 

the result of increasing demands for funds or collateral throughout MF Global, funds did not 

return as anticipated. As these withdrawals occurred, a lack of intraday accounting visibility 

existed, caused in part by the volume of transactions being executed, and the 4(d) U.S. 

segregated commodity customer account appears to have reached a deficit condition on 

Wednesday, October 26th that continued through to MF Global’s bankruptcy. 

8. The Trustee has identified most of the parties that were the immediate 

recipients of transfers from MFGI during the final days and weeks of operation. These transfers 

were largely effected through the clearing banks acting on behalf of MFGI. The ultimate 

recipients of these transfers included banks, exchanges and clearing houses, MFGI affiliates, 

counterparties, and customers of the futures commission merchant and the broker-dealer. 

9. The number of transactions executed by MF Global during the last week 

prior to the initiation of insolvency proceedings escalated to unprecedented volumes. The rush 

to meet funding needs for collateral, margin and customer liquidations led to billions of dollars in 

securities sales, draws on credit facilities, and a web of inter-company loans across affiliates, 

some foreign. The company’s computer systems and employees had difficulty keeping up with 

the unprecedented volume of transactions. A number of transactions were recorded erroneously 

or not at all. So called “fail” transactions—where either the buyer or seller fails to deliver the 
5 

cash or the security, respectively—were five times the normal volume during the firm’s final 

week. 

10. The investigation has revealed that a confluence of factors contributed to 

the deterioration of MF Global’s liquidity position. The exposure to European sovereign debt, 

coupled with the announcement of disappointing quarterly results, triggered credit downgrades 

by Moody’s, Fitch and S&P. This escalation in credit risk mandated substantial margin calls and 

increased demands from counterparties and exchanges for collateral. As an example, the 

additional margin paid to support only the sovereign debt positions exceeded $200 million 

during the final week of operations. This was a significant drain on available cash and securities. 

The sovereign debt investments undertaken on a repo to maturity basis allowed some immediate 

gains to be booked, but these were purely paper profits generating negligible cash while the 

underlying transactions resulted in calls for substantial additional margin. 

11. The heightened risk and apparent loss of confidence drove customers to 

close their accounts and withdraw funds, resulting in even greater demands on a relatively 

limited amount of available cash. The Trustee’s investigation has revealed that, while personnel 

may not have been immediately aware of it, MFGI experienced a shortfall in 4(d) customer funds 

beginning during the day on Wednesday, October 26th. MF Global Holdings Ltd., the MF 

Global parent company, struggled to continue to operate and even to sell the business, but MFGI 

appears to have remained in a shortfall of commodity customer segregated funds virtually 

continuously until its parent filed for Chapter XI protection on Monday, October 31st and the 

SIPA proceeding was commenced against MFGI later that afternoon. 

12. The Trustee’s investigators, including the legal and forensic accounting 

teams, have conducted over 50 witness interviews, preserved secure access to thousands of boxes 
6 

of hard copy documents, imaged over 800 computer drives, and are maintaining over 100 

terabytes of data. 

13. To understand where the funds went during October 2011, the analysis 

conducted by the Trustee’s professionals has included 840 cash transactions in excess of $10 

million that total $327 billion, and an ongoing analysis of related securities transactions 

involving a value of over $100 billion. These large cash transactions alone span 47 bank 

accounts across eight financial institutions. An additional 20,000 cash transfers that total $9 

billion involve transfers of less than $10 million. 

14. The Trustee’s investigation is continuing to correlate cash transfers to 

relevant movements of securities used as collateral or loaned to counterparties. To that end, the 

Trustee is now working with various third parties to further define these securities transactions 

and obtain more complete information about the extent and basis for transfers to select parties. 

The Trustee continues to investigate the complex factual and legal questions to determine how 

best to pursue possible recoveries and the extent to which applicable law would support claims 

against particular recipients of funds, affiliates, and possibly to other parties, including 

employees of MF Global. 

15. The Trustee’s investigation will continue, in coordination with the 

regulatory and law enforcement investigations that are being conducted by the Department of 

Justice, the Commodity Futures Trading Commission, and the Securities Exchange Commission 

on an ongoing basis. The Trustee will seek to release additional information related to his 

investigation in the future, but cannot prematurely release information that might compromise 

the integrity of those investigations or the Trustee’s own efforts to recover funds for customers 

and the estate. 
7 

CLAIMS PROCESS AND ACCOUNT TRANSFERS

16. The Trustee’s staff is continuing its analysis of customer claims after the 

claims filing period for commodities customers closed on January 31, 2012. 

17. Once a claim is reviewed by the Trustee’s staff on as expedited a basis as 

possible, a determination letter will be issued to the claimant. These determination letters are 

being issued on a rolling basis. The determination letter will acknowledge the claim and provide 

a determination as to whether the claim has been allowed, denied, reclassified, or is subject to 

further reconciliation or information requests. 

18. The Trustee is eager to make additional distributions to former MFGI 

customers as soon as possible. However, the Trustee is required by law to hold an appropriate 

reserve of funds until disputed claims are resolved either through negotiation or by the Court. At 

this time, the Trustee anticipates significant disputed claims against the MFGI estate by MF 

Global Holdings Ltd., MF Global UK Limited, and other entities. The Trustee will move to 

attempt to resolve these claims as quickly as possible, but it is uncertain how long resolution will 

take. Therefore, it is not known at this time when the Trustee will be legally able to make 

additional distributions. 

19. The Trustee has already distributed nearly $4 billion to former MFGI 

retail commodities customers with U.S. futures positions via three bulk transfers: 

 Within days of the bankruptcy, the Trustee received Court approval for 

the transfer of 10,000 commodities customer accounts with three 

million open positions, along with approximately $1.5 billion in 

collateral associated with those positions at the time of the bankruptcy. 

These open positions had a notional value of $100 billion. It is 

estimated that 40% of all commodity futures exchange activity in U.S. 

markets came from MFGI trades and a serious disruption in markets 

was avoided by the transfer. 
8 

 A transfer of 60% of the cash attributable to approximately 15,000 

customer commodity accounts with cash only in the accounts, totaling 

approximately $500 million, was completed in November. 

 In December and January a third transfer occurred that moved 

approximately $2 billion to restore 72% of U.S. segregated customer 

property to all former MFGI retail commodities customers with U.S. 

futures positions. 

20. In addition, the Trustee has received Court approval to sell and transfer 

approximately 318 active retail securities accounts, which is substantially all of the securities 

accounts at MFGI. Nearly all securities customers have received 60% or more of their account 

value and already 194 of former MFGI securities customers have received the entirety of their 

account balances because of a Securities Investor Protection Corporation guarantee. 

Dated: New York, New York 

February 6, 2012 

Respectfully submitted, 

HUGHES HUBBARD & REED LLP 

By: /s/ James B. Kobak, Jr. 

 A member of the firm 

One Battery Park Plaza 

New York, New York 10004 

Telephone: (212) 837-6000 

Facsimile: (212) 422-4726 

Attorneys for James W. Giddens, 

Trustee for the SIPA Liquidation of 

MF Global Inc.
Appendix A 
Consolidated Overview of Cash Movement 

MF Global Inc. 10/1 – 10/31

MFGI operated 47 bank accounts held at 8 

financial institutions.

There are 840 transactions > $10 million 

that total approximately $327 billion. 

This flowchart excludes roughly 20,000 

transactions < $10 million that total 

approximately $9 billion. 

“Third party” includes customers, lending 

banks, brokerage firms, exchanges, and 

clearing agents.

For presentation purposes, this chart does 

not reflect certain transactions that occurred 

solely within a related grouping of accounts.

This reflects cash movement only. Investigation is ongoing to trace correlated securities, collateral and other assets.

Third

Party

Broker-Dealer

House

Commodities

House

Affiliates

Commodities

Customer

(Sec 30.7)

Broker-Dealer

Customer

(15c3-3)

Commodities

Customer

(Seg 4d)

1
► Credit rating downgrade

► Increased margin calls 

► Funds in segregation: excess turns into deficit

► Customer liquidations / withdrawals

► Bonds borrowed program unwind creates liquidity gap of approx $450 - 500 million

► Increased draws on both credit facilities:

► Unsecured Revolving Credit Facility nearly fully drawn on 10/28 at $1.17 billion of the $1.2 billion

► Secured facility balance of at least $130 million of the $300 million.

Pertinent Liquidity Events 10/24 – 10/31

2
Increased margin calls

0.00

0.20

0.40

0.60

0.80

1.00

1.20

$ billions

10/24 10/25 10/26 10/27 10/28 10/31

Sovereign Debt Repo To Maturity - Margin Call Trend

Initial Margin Variation Margin Buffer Margin Increase Coverage Collateral Posted

Date Initial Margin

Variation 

Margin Buffer Margin

Increase 

Coverage Total Margin

Collateral 

Posted Margin Call

10/24 278,049,205 182,979,874 5,000,000 466,029,079 457,962,898 8,066,181

10/25 277,302,875 188,277,470 5,000,000 470,580,345 464,694,118 5,886,227

10/26 410,963,534 185,592,415 5,000,000 601,555,949 492,732,015 108,823,934

10/27 454,624,390 182,811,558 5,000,000 23,280,469 665,716,417 604,003,047 61,713,370

10/28 495,975,763 199,344,353 5,000,000 23,219,740 723,539,856 663,925,523 59,614,333

10/31 745,975,763 199,344,353 5,000,000 23,219,740 973,539,856 663,925,523 309,614,333 3
Customer funds in segregation: excess turns into deficit 

 4.00

 4.50

 5.00

 5.50

 6.00

 6.50

 7.00

 7.50

Oct 24 Oct 25 Oct 26 Oct 26 (A) Oct 27 Oct 28

$ billions

Daily Segregation Requirements and Funds in Segregation

Amount required to be segregated Total amount in segregation

Excess

Deficit

(A) A shortfall in segregated customer funds occurred during 10/26. The calculation originally prepared by MFGI contained an error. Cash 

deposits in segregated funds bank accounts were erroneously overstated.

4