FBI To Look Into MF Global Collapse

Nov 2 2011 | 11:41am ET

The investigation into the collapse of the Man Group's former futures brokerage continues to expand, with the Federal Bureau of Investigation eyeing the case.

MF Global's end was sealed yesterday, when a federal bankruptcy judge approved its plan to liquidate and appointed a trustee. A lawyer for the firm, which spun off from Man four years ago, told the court, "to the best knowledge of management, there is no shortfall," referring to a reported $600 million in missing client assets. But the firm's legal team admitted that the suddenness of the firm's demise made it difficult to keep up with the huge number of transactions as MF Global sought to close positions.

But the FBI plans to look into whether customer money is missing at the firm, The Wall Street Journal reports. The Commodity Futures Trading Commission also expanded its own probe, issuing subpoenas to MF Global, although it, too, has not yet launched a formal investigation.

The FBI move is the first step towards a full criminal probe of MF Global's collapse. First, the agency has to determine whether any money is missing and, if so, whether a crime might have been committed.

The court gave MF Global access to $8 million held by JPMorgan Chase, which the firm said was needed to "keep the lights on," but fretted that it would be a "bridge to nowhere."

Meanwhile, clients with money with MF Global—including hedge funds—were scrambling to move their assets and trades, with mixed success. Customers stymied by the bankruptcy filing Monday have inundated the Securities Investor Protection Corp. with phone calls. The SIPC's Kevin Bell called the collapse "like a mini-Lehman" Brothers.

"What customers ask is, 'When am I getting my money?'" he told Bloomberg News. "You tell them to sit tight and start gathering their information so they can file claims: canceled checks, trade confirmations, account statements."

MF Global did not oppose the SIPC's application to liquidate the firm. Trustee James Giddens said he would move to ensure an "orderly and fair" process.

Other hedge funds had another headache: Huge stakes in the company, whose stock price plummeted by two-thirds in the week before its bankruptcy filing and a suspension of trading. One hedge fund, Cadian Capital Management, sought to profit from the drop in MF Global's stock price, doubling its stake on Oct. 25, only to rapidly reverse course and sell one-third of its stake two and three days later.

What's left of Cadian's stake is likely now worthless.


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