MF Global Holdings Ltd

MF Global Holdings Ltd, formerly known as MF Global Inc. and before that Man Financial, was one of the world's largest derivatives brokers with a significant presence in OTC products and cash securities.
The firm filed for Chapter 11 Bankruptcy protection on Oct. 31, 2011 and Chairman and CEO Jon S. Corzine resigned four days later, after the company got margin calls and bank demands for money resulting from its investment in distressed European sovereign debt. It was the eighth-largest U.S. bankruptcy.
 
The bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc. broke down. Shortly after, it became clear that MF Global dipped into customer accounts that were supposed to be segregated and protected from the rest of the business to cover margin calls on European sovereign debt positions initiated by MF Global. The shortfall in customer funds on Nov. 21, 2011 was estimated to be more than $1.2 billion, although it has been reported as high as $1.6 billion. 
Eight days later, trustee James W. Giddens filed an expedited motion for the bankruptcy court's approval of a $2.1 billion bulk transfer and distribution to former MF Global customers. MF Global customers were eventually made whole, but it took nearly two and a half years. The final payout was approved by the bankruptcy judge in late 2013 and final checks were disbursed in April 2014.
On August 19, 2015 a Manhattan bankruptcy court judge approved the brokerage's request to hand pending litigation against Corzine and other company leaders to its parent company, paving the way for nearly 100 percent recoveries for MF Global's creditors.
== Bankruptcy ==
MF Global's collapse followed significant losses from poor risk management and massive losing positions in the European bond market during 2010 and 2011. Jon Corzine, who became CEO in March 2010, aimed to transform MF Global from a futures commission merchant into an investment bank. In a 2010 interview with CME Magazine, Corzine discussed his plan to take on principal risk to expand client relationships without excessive risk, saying "one of our problems has been that we have not been a principal risk taker to facilitate our clients in listed markets. That will change and provides a very strong means to expand our relationship with clients and can be done without turning into a proprietary trading shop, or one with excessive risk.".
However, by October 31, 2011, MF Global filed for Chapter 11 bankruptcy due to the European debt trades. The firm disclosed a $191.6 million quarterly loss and a $6.3 billion exposure to the debt of several European countries. The bankruptcy filings revealed $39.7 billion in debt and $41 billion in assets, with more than 500 creditors, including J.P. Morgan Chase, owed $1.2 billion. Its finance unit, MF Global Finance USA Inc., also filed, with debt of as much as $50 million and assets of as much as $500 million. 
Both MF Global entities sought protection in U.S. bankruptcy court in Manhattan.
On the same day, the Federal Reserve Bank of New York suspended MF Global as a primary dealer, and CME Group restricted staff from accessing its trading floors. Exchanges worldwide locked out the firm's activities, and MF Global shares were halted as of September 30, 2011. As of Sept. 30, 2011, MF Global had 2,894 employees. A potential sale to Interactive Brokers Group Inc. fell through, which would have brought new clients and broader business in commodities markets. Interactive Brokers director and Vanderbilt University professor of finance, Hans Stoll, was noted in a Bloomberg Businessweek article on Nov. 2, 2011, saying that Interactive Brokers had noted discrepancies over the missing funds that were used to back futures trades.
The bankruptcy, the eighth-largest in U.S. history, saw a significant global footprint with offices in major financial centers and operations on over 70 exchanges. On November 2, 2011, the case was assigned to U.S. Bankruptcy Judge Martin Glenn. By November 17, Judge Glenn approved the transfer of over 22,000 brokerage accounts to new dealers. On November 21, trustee James W. Giddens revealed the shortfall could exceed $1.2 billion. Former FBI director Louis Freeh was appointed as bankruptcy trustee on November 25. In his first public statements following the appointment, Freeh vowed to take an "independent" approach in handling MF's bankruptcy proceedings.
On Nov. 29, 2011, Giddens filed an expedited motion with the U.S. Bankruptcy Court for the Southern District of New York for a $2.1 billion bulk transfer and distribution for former MF Global customers.
On Dec. 9, 2011 the judge approved an additional $2.2 billion transfer to MF Global's U.S. commodities customers, bringing the recovery to 72 percent of accounts.
On Dec. 13, 2011, CME Group CEO Terrence A. Duffy testified before the Senate Committee on Agriculture, Nutrition & Forestry, saying that Corzine was aware of at least one firm's use of customer segregated funds to make a loan. Duffy said a CME auditor participated in a phone call during which an MF Global employee indicated that Corzine knew the firm used customer money to lend $175 million to its European affiliate. Duffy also said that the CME Group had provided this information to the Justice Department. He declined to name the MF Global executive who said Corzine was aware of the breach. 
On March 25, 2012, media reports indicated that Corzine had been told during the brokerage firm’s final day of business that a crucial transfer of $175 million came from the firm’s own money, not from a customer account, according to an internal e-mail.
The e-mail, sent by an executive in MF Global’s Chicago office, showed that the company had transferred $175 million to replenish an overdrawn account at JPMorgan Chase in London. The transfer, the e-mail said, was a “House Wire,” meaning that it came from the firm’s own money. The e-mail, sent at 2:20 p.m. on Oct. 28 to Mr. Corzine and two of his assistants in New York, says the transfer came from a “nonseg” account, industry speak for a noncustomer account.
In January 2013, a major breakthrough was made in the bankruptcy and return of customer funds. On January 30, 2013 the US Bankruptcy court reviewed a proposal from the trustee, James Giddens that would fill 93 percent of funds for US customers of MF Global. Under the proposal, KPMG, the British administrator in charge of the UK bankruptcy proceedings, would pay Giddens an estimated $500 million to $600 million. The transfer effectively ended a dispute over of US and UK MF Global funds. The deal also ended a dispute between Giddens and Louis Freeh, who represented the MF Global broker dealer unit. Freeh had filed claims of more than $2 billion against Giddens. The proposal also includes a series of settlements with JP Morgan and other firms that would return 100 percent of the missing funds, along with the recovery of money held in the MF Global general estate. 
Meanwhile, hedge funds, among other customers, were beneficiaries of a UK bankruptcy court decision on January 29, 2013. The UK court ruled that an additional $59.1 million would be valued at the time of the collapse, rather than when those customer positions were liquidated. About 370 MF Global clients benefited from that court's decision, which increased the total pool of money from $450 million to $509.1 million.
In January 2013, a proposal to return 93% of funds to U.S. customers was reviewed by the bankruptcy court, effectively ending disputes over MF Global funds. On April 3, 2014, trustee James W. Giddens announced the final distribution of $6.7 billion, satisfying all claims, 100% of the money to satisfy all claims of former MF Global customers. The bankruptcy highlighted the challenges posed by SIPC intervention in liquidating a broker-dealer with multiple business classes, marking the largest futures broker liquidation in U.S. history.
== Investigations Into MF Global ==
At the end of October of 2011, Securities Investor Protection Corp. (SIPC) said the broker-dealer part of MF Global may not be able to meet its obligations to its customers. SIPC began a legal proceeding against MF Global that would be transferred to U.S. Bankruptcy Court in Manhattan because MF Global consented to SIPC's application to liquidate it.
CME Group, the exchange where MF Global did business until Oct, 31, 2011, said it was investigating missing money, joining federal regulators in doing so. Using special permission from regulators, CME was planning to take the unusual step of transferring MF Global’s customer positions without returning all the collateral the customers originally posted. 
Senate Agriculture Committee Chairman Debbie Stabenow (D-Mich.) asked the Commodity Futures Trading Commission in November to speed up its MF Global investigation. CFTC Commissioner Scott O'Malia requested his agency work with the SIPC trustee to ensure an expedited claims process and transfer of customer funds.
CFTC Commissioner Jill E. Sommers responded to concerned customers of MF Global, Inc. in a press release issued Dec. 16, 2011. Sommers said in the press release that the CFTC strongly believed that commodity customers had an exclusive right to commodity customer property above all other creditors. This included, without limitation, segregated property, property improperly removed from segregation that was still within MFGI’s estate, and property improperly removed from segregation that was no longer within MFGI’s estate, and is recovered by the Trustee.
On Jan. 10, 2012, Edith O'Brien asked for the MF Global case's first immunity agreement. The New York Times reported that the FBI had named O'Brien "a person of interest" in the investigation, and she was reportedly the person who pulled the trigger on a $200 million transfer of customer funds to JP Morgan Chase on the eve of MF Global's bankruptcy.
On Jan 12, 2012, about 100 MF Global customers gathered at the New York Marriott Downtown hotel to hear James Giddens - the trustee appointed to liquidate MF Global - say that MF Global Inc. had distributed about $3.8 billion thus far and had about $1.5 billion under its control, while there was still $1.2 billion missing.
On Jan. 17, 2012, it became known that investigators would focus on the Chicago operations of MF Global Holdings Ltd. after one worker in MF’s Chicago back-office functions said she took issue with congressional testimony by former Chairman Jon Corzine that she provided assurance that a transfer of $200 million was proper.
On Jan. 30, 2012, it became known that shortly before MF Global Holdings Ltd. collapsed, its chief financial officer told Standard & Poor's in an e-mail that the futures broker had "never been stronger." S&P provided the House Financial Services Subcommittee on Oversight and Investigations with an excerpt of the e-mail from MF Global CFO Henri Steenkamp. S&P also informed the panel that Jon Corzine, then MF Global's chief executive officer, met with its analysts on Oct. 20 to reassure them that his $6.3 billion position in European sovereign debt was no threat to the firm, according to a Jan. 17, 2012 letter obtained by Bloomberg News.
On Feb. 6, 2012, word surfaced that MF Global faced a $310 million margin call on its final day that exceeded its market value. Calls for payments tied to bets MF Global made on European sovereign debt increased Oct. 24 and continued through Oct. 31, the day the futures broker filed for bankruptcy protection, according to a report from James Giddens, the trustee overseeing the brokerage’s liquidation.
On December 24, 2014, a Federal court in New York ordered MF Global Holdings to pay $1.212 billion in restitution or such amount as necessary to ensure that claims of customers of its subsidiary, MF Global Inc. (MFGI), are paid in full. The court also imposed a $100 million civil monetary penalty on MFGH, to be paid after claims of customers and certain other creditors entitled to priority under bankruptcy law have been fully paid.
== Related Lawsuits ==
In December of 2011, CME Group Inc. Vice Chairman Charles Carey and other traders who had futures trading accounts with MF Global Inc. sued former MF Global head Corzine over assets lost in the firm's demise. Carey's trading firm, Henning-Carey Proprietary Trading LLC, and the other traders filed the lawsuit in U.S. District Court for Northern Illinois and sought class-action status for their case, which also named other MF Global officers as defendants. The plaintiffs said in the filing that they had “significant cash balances in their trading accounts” at MF Global.
== Industry Efforts To Alleviate Problems ==
On Jan. 18, 2012, it was announced that CME Group and National Futures Association (NFA), in conjunction with the InterContinental Exchange (ICE), the Kansas City Board of Trade (KCBOT) and the Minneapolis Grain Exchange (MGEX) had formed a joint committee to review how self-regulatory organizations can strengthen current safeguards for customer segregated funds held at the firm level in light of the MF Global bankruptcy.
In early April of 2012, CME announced to users of the market that it would adopt several enhancements to its reporting requirements in an effort to further safeguard customer funds at the firm level. Enhancements were put forward in conjunction with recommendations from the National Futures Association (NFA), Futures Industry Association (FIA) and others. In addition to increased reporting requirements, limited reviews of customer segregated, secured and sequestered statements would be put into play on a surprise basis outside of the regular examinations.
In late July of 2012, CME Group distributed a letter to customers and to the media, saying that the organization was "appalled by the recent misuse of segregated funds by two firms, MF Global Inc. and PFG, particularly since there has never been anything like it in the history of the futures industry" and said "But while these firms may have been at fault, it's nevertheless our problem as an industry, and this problem needs a solution. Not protecting customer funds is such a fundamental breach of trust that, without question, the current system in which customer funds are held at the firm level must be re-evaluated. We are exploring the concept of having clearing houses or other depositories hold all customer segregated funds while returning any interest earned on that money back to the FCMs, increasing protections while preserving the operating model for the vast majority of firms who respect and comply by the rules."
== Trustee Report ==
On June 4, 2012, MF Global trustee Giddens filed a report on his independent investigation into the failure of the broker-dealer with the United States Bankruptcy Court for the Southern District of New York, the Honorable Martin Glenn, presiding.
“As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity,” Giddens said. “My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions.
In light of these conclusions, I have determined there may be valid claims against individuals and entities. In my capacity as Trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others,” Giddens said in the report.
The Trustee’s findings in the report were based on his counsel’s interviews of more than one hundred people, along with review of hundreds of thousands of documents, and an extensive forensic investigation conducted with the assistance of forensic accountants at Ernst & Young LLP.
Because the trustee did not have law enforcement or regulatory authority, the report drew no conclusions about possible criminal liability or whether sanctionable regulatory violations occurred. 
The report also included a discussion of the trustee’s recommendations for legislative, regulatory or other reforms that might help avert similar liquidations in the future, or at least alleviate their consequences:
* Abolish the alternative calculation method and implement a requirement to segregate an amount in excess of 100% of customer funds.
* Eliminate the segregated versus secured distinction in Commodity Futures Trading Commission (CFTC) Regulation 30.7, ensure consistency of customer protection when trading overseas, and monitor compliance abroad closely.
* Create a protection fund for futures and commodities customers under a certain threshold, and implement suitability standards for customers of Futures Commission Merchants (FCMs).
* Provide for civil liability for officers and directors in the event of a commodities segregation shortfall.
* Consider simplifying some CFTC rules for bulk transfers and claims in an FCM liquidation proceeding.
* Enact legislation explicitly authorizing Trustee standing on behalf of customers.
== History ==
MF Global traces its roots to the sugar trading business started by James Man in England in 1783, which evolved into broader commodities trading before its later transformation into a financial services business during the 1980s.
Its former parent, then known as ED&F Man, diversified from its pure cash commodities into commodity futures in the late 1970s, and established the Anderson Man futures brokerage in 1981. It later changed its name to ED&F Man International and then Man Financial, before adopting the current brand following the IPO and separation of the brokerage from the asset management operation.
ED&F Man operated as a partnership through to the 1970s, when it started an international expansion which, by 1983, saw its staff climb to 650 employees. ED&F Man listed on the London Stock Exchange in 1994, changing its name to Man Group in 2000. Its agricultural business, which retained the ED&F Man name, was sold to management the same year.
The rapid expansion of the Man Investments unit in the nascent hedge fund management business shrouded many investors from the development of its brokerage unit as global derivatives volumes began their exponential rise at the start of the decade.
== Acquisitions ==
Man Financial embarked on a series of acquisitions which expanded its product capability and geographic reach, starting in 1989 with the purchase of the Chicago-based GNP Commodities, and including well-known industry names such as Geldermann, Gerald Metals, Tullett & Tokyo Futures, First American Discount Corporation, Australia’s Ord Minnett and GNI.
In 2002, Mann’s acquisition of GNIwas the largest deal until its transformative $323 million acquisition of client assets and accounts from entities of Refco following the U.S. financial services group’s collapse in late 2005. Only a month a earlier, Refco had closed its purchase of Cargill Investor Services from agribusiness giant Cargill. The Refco deal followed a hotly-contested auction with Cerberus Capital, the private equity group, and boosted Man Financial’s scale in retail and institutional business.
In 2005, with the financial collapse of Refco Inc., Man Financial, which was renamed MF Global in 2007, purchased the assets of Refco for $282 million in cash and $41 million in liabilities. As part of the deal, MF Global acquired Lind-Waldock, which had kept is name while under the Reco umbrella. Lind-Waldock operated as a division of MF Global Holdings Ltd., until the parent company changed its name to MF Global on Aug. 1, 2011.
The acquisitions continued, with its retail complex augmented in January 2007 with ChoiceOdds, an independent UK-based financial binary trading firm. MF Global planed to list contracts developed by the firm on the U.S. Futures Exchange (USFE).
MF Global owned a stake in USFE, but announced on Dec. 17, 2008 that it would exit the exchange by the end of 2008 if it could not find a buyer for its stake.
In October 2011, MF Global purchased Strategy Runner, a multi-asset front-end trading system and algorithmic trading solution provider for $3.75 million. The acquisition advances the firm's strategy to build a comprehensive multi-asset, multi-currency, electronic trading platform. 
==IPO and Name Change==
In July 2007, Man Financial, the brokerage arm of Man Group, was spun off in an initial public offering and renamed MF Global. The firm priced its IPO at $30 per share (below an expected range of $36 to $39) and raised $2.9 billion on July 18, 2011, making it one of the largest IPOs of the year. The share price slid on opening day to $27.55, down 8.2 percent.
In January of 2011, MF Global Ltd. reached a preliminary agreement on the settlement of a shareholder lawsuit tied to its initial public offering (IPO) in 2007. As part of the agreement, MFG said it would contribute $2.5 million to an overall settlement of $90 million for the suit. In the complaint, filed as a class action lawsuit in 2008, MFG was alleged to have issued materially false and misleading statements regarding its IPO registration and prospectus.
==Financial Shocks and Regulatory Actions==
In February 2008, a broker from MF Global’s Memphis, Tenn. office lost $141 million in unauthorized wheat trades. The news sent the firm’s shares plummeting, down 26 percent.
According to a regulatory filing by MF Global Inc. in September of 2009, the firm named Evan Dooley as the person responsible for the losses while trading for his own account through one of the company’s front-end order entry systems, Order Express. The firm said Dooley put on a significant wheat futures position during the late evening of Feb. 26, 2008 and early morning of Feb. 27, 2008. The positions were liquidated at a loss of $141,045,000 on Feb. 27, 2008. The trades were unauthorized and because the broker had no apparent means of paying for the trades, the company, as a clearing member of the exchange, was required to pay the entire shortfall. The exchange and regulators were immediately notified, the broker promptly terminated, and a public announcement of the loss was made by the company the next day."
Subsequently, MF Global was fined $10 million by the CFTC over the incident and an unrelated Natural Gas incident from 2003. The CME Group also fined MF Global $495,000 over the wheat incident.
On March 17, 2008, shares of MF Global fell on liquidity fears. The CME, ICE, NYMEX and the CFTC issued statements confirming MF Global was in compliance with regulatory and financial requirements.
James W. Giddens, the trustee for the liquidation of MF Global Inc., on March 15, 2012 filed a motion with the United States Bankruptcy Court for the Southern District of New York seeking authority for additional distributions to former MF Global Inc. commodities futures customers who traded on U.S. exchanges, and for a first distribution to former MF Global Inc. commodities futures customers who traded on foreign exchanges. The trustee was seeking authority for a distribution of up to approximately $600 million of customer property held as segregated by MF Global Inc. for its former commodities futures customers who traded on U.S. exchanges (4d funds); up to approximately $50 million of customer property associated with commodity transactions in foreign markets (30.7 funds); and up to approximately $35 million of customer property to a domestic delivery class, which the trustee identified as consisting of physical customer property that had been or would be reduced to cash in any manner.
== Company Transitions ==
In October 2008, MF Global hired Bernie Dan as CEO, replacing Kevin Davis. Dan vowed to revamp the firm’s risk management practices. Dan, however, was replaced in March 2010 by Jon Corzine, fomer Goldman Sachs partner, former U.S. Senator and former Governor of New Jersey. Corzine promptly set a strategy to turn the brokerage firm into an investment bank.
Corzine's overhaul included sweeping cost cuts, a revamped employee compensation scheme and an increased use of MF Global’s own capital to generate income for the firm.
In November 2009, MF Global announced plans to relocate its corporate headquarters to the U.S. from Bermuda.
In August 2011, regulators ordered MF Global to increase its net capital, over concerns regarding MF Global’s exposure to European debt positions. Those fears turned out to have merit, as it was revealed that MF Global was holding more than $6 billion in European debt.
On Oct. 25, 2011, those losses further expanded during its quarterly earnings report, when MF Global disclosed a $191.6 million loss for the second quarter, largely on losing European bond market positions. Rating agencies such as Fitch and Moody's downgraded the company and its stock plunged 48 percent that day. 
On Oct. 31, 2011, after failing to find a buyer during the prior weekend, MF Global declared bankruptcy. Also on Oct. 31, 2011, the Federal Reserve Bank of New York suspended MF Global from conducting business as a primary dealer.
On Nov. 1, 2011, CME Group, the exchange where MF Global did business until Oct, 31, 2011, said the CME was investigating missing money, joining federal regulators in doing so. Using special permission from regulators, CME was planning to take the unusual step of transferring MF Global’s customer positions without returning all the collateral the customers originally posted.
On Nov. 2, 2011, it was announced that the MF Global bankruptcy case had been assigned to U.S. Bankruptcy Judge Martin Glenn in Manhattan. Also on Nov. 2, 2011, a lawyer for MF Global told a New York court that “to the best knowledge of management, there is no shortfall.” Kenneth Ziman told the bankruptcy court that most of MF Global’s US assets were held at its brokerage unit.
In addition, on Nov. 2, 2011 U.S. Bankruptcy Judge Martin Glenn in New York granted a request by liquidation trustee James W. Giddens to permit the transfer of “certain segregated customer commodity positions,” according to court papers. Further, on Nov. 2, 2011, EMC Master Fund Ltd., an MF Global customer based in the Cayman Islands, filed an emergency motion seeking a modification of Glenn’s order to also allow the transfer of the accounts’ cash collateral. Unless the cash transfer was allowed, no other broker would accept the account, EMC said.
On Nov. 7, 2011, MF Global Holdings Ltd. creditors, looking to recover from the bankruptcy, debated whether or not to sue the company's advisers, search for assets overseas and seek information from a probe into the commingling of customer accounts at the brokerage.
On Nov. 11, 2011, the trustee overseeing the liquidation for MF Global announced that all 1,066 employees of bankrupt MF Global's brokerage unit had been laid off. While the terminations were effective immediately, the employees would be paid through Nov. 15 and would have health coverage through the end of the month, but they would not get severance.
On Nov. 11, 2011, CME Group announced that though CME Clearing would not guarantee FCM-held assets, CME Group was willing to provide a $250 million financial guarantee to the trustee to give the trustee greater latitude to make an interim distribution of cash to customers immediately, given the monumental task he faces to sort through considerable data and claims in order to complete the MF Global liquidation and make distributions to creditors. Additionally, CME Trust would provide $50 million to CME Group market participants in the event there would be a shortfall at the conclusion of the Trustee's distribution process. Until this point, the trustee had authorized the distribution of $1.45 billion in customer collateral, which permitted the transfer of open positions and avoided greater losses to customers that would have been incurred through liquidation. Cash balances remained frozen. The CME's proposal was designed to ensure that customers would have access to a greater percentage of the total customer-segregated funds MF Global accounted for at CME Clearing, other clearing houses and MF Global custodians.
== Resources ==
* John Lothian Newsletter MF Global Bankruptcy News
== Key People ==
Bernard W. Dan stepped down as CEO of MF Global on March 23, 2010, succeeded by Jon S. Corzine. Dan was originally appointed CEO on Oct. 29, 2008, succeeding Kevin R. Davis. 
Dan, the former Chicago Board of Trade CEO, was made chief operating officer of MF Global Ltd.’s North American unit, reporting to MF Global’s U.S. head, Thomas Harte, and the company’s global COO, Christopher Smith. The appointment was announced June 12, 2008. Smith has since left the company.
Executive Officers:
Board of Directors:
== Registration ==
*MF GLOBAL INC - NFA ID: 0266826
== References ==
Category:Defunct Clearing Member Firms
Category:Defunct Futures Commission Merchants
Category:Defunct Brokerages
Category:Exempt Foreign Firm Agents
Category:Defunct Commodity Pool Operators
Category: Defunct FIA Regular Members
Category:MarketsWiki Page of the Day
Category:MF Global
Category:Defunct Firms