Last week the Commodity Futures Trading Commission brought a lawsuit against Jon Corzine for his alleged misuse of customer money that led to a loss of more than $1.6 billion for firms working with MF Global. This week comes word that a settlement has been reached between JP Morgan and MF Global that could free up some cash to help pay those who took losses.
Many farmers were caught up in the MF Global collapse because their trading firms used MF Global as a clearing house. MF Global allegedly dug into customer money when a bet on Euro-zone securities went south fast - a violation of the fiduciary relationship between company and customer. According to press reports today from USA Today and others, JP Morgan was holding MF Global money in a number of accounts and also was a processor of securities for the failed firm.
James Giddens, court-appointed trustee overseeing the MF Global bankruptcy is apparently pleased with the news of the settlement. Giddens has been riding herd on the process from early on, working to get access to money from MF Global to pay claimants.
So far nearly 90% of the money has been recovered, but the work continues to make customers whole. Segregated funds do not belong to the brokerage and are only to be used to execute customer trades.
CFTC issued a report in late May taking a look at what happened with MF Global and what could be done to prevent the same problem in the future. A few months after MF Global collapsed, Peregrine Financial went under. That case cost customers $215 million and it appears that those responsible for liquidating assets for that failed firm are coming up short in reimbursing clients. A Chicago Tribune story this week relayed the bad news that Russell Wasendrof Sr., convicted of fraud and serving a 50-year sentence, did spend most of the money he defrauded from customers.