Bankruptcy Judge: MF Global Can Release $520 Million to Customers
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Bankruptcy Judge: MF Global Can Release $520 Million to Customers

November 30, 2011


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Since October 31, clients of the now-defunct brokerage firm MF Global have had their accounts frozen as the company begins working its way through the bankruptcy process. But this week, according to the Washington Post, the bankruptcy judge overseeing the MF Global case okayed the release of $520 million in what had been the firm’s frozen assets. The money will go back to customers.

The order amounts to the approval of a request from the bankruptcy trustee assigned to the case. When the money is released, roughly 60 percent of some 23,300 accounts will be made available to customers—and naturally, those customers are none too pleased about the other 40 percent.

In total, MF Global was holding 38,400 accounts at the time of its collapse, with a total of about $5.4 billion invested (though not all in cash). It seems that so far, the process of determining who gets what money back is taking longer than expected.

Ultimately, according to sources, the bankruptcy trustee hopes to return customers’ full investments to them, but that goal could be thwarted by the realities of MF Global’s collapse. As of now, it seems that as much as $593 million has still not been accounted for.

That “missing money” situation has started to make more than a few customers antsy, especially as regulators (including the Commodities Futures Trading Commission) investigate whether MF Global used customer money to leverage its own speculative investments. Such behavior would constitute violations of both securities rules and possibly criminal laws.

A Bad Bet on European Debt

MF Global filed for bankruptcy protection at the end of October after going belly-up when investments in European debt turned out for the worst. Prior to its collapse, MF Global was a major player in the derivatives market, one known for its risky but potentially high-yielding investments.

The larger impact of MF Global’s bankruptcy may still be unfolding; however, at present, authorities are suggesting that greater regulation and oversight of the firm (and of derivatives traders in general) might have prevented the bankruptcy.

The pro-regulatory message rings an all-too-familiar bell to a market still raw from the shock caused by the implosion of Wall Street after the real estate bubble burst in late 2007.

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