MF Global Might Be MF Fraud

News just went across the wires that MF Global($MF) didn’t segregate their customer funds. The bankruptcy just escalated from really bad business decisions, to fraud.

When you’re a trader and put up money into your account, those funds are segregated from every other account in the firm. If the firm goes kaput, or a fellow trader goes bust, your money is safe. All you do is create a new account at a new firm, transfer the money and positions and you are in business.

Segregating those funds is a sacred trust between trader and firm. There is no higher calling for a firm. Your customer accounts are sacrosanct. You might earn a little yield over night on the excess in the overnight Repo market, but you never put those funds at risk. That’s the traders job.

MF Global may have put them at risk. That’s fraud, and if they in fact did it there should be people doing a perp walk.

There are people that ask me why I do business with Shepard International Trading. “They are too small.” they might say. Or, “Bill is a tough guy.” Or, “They don’t give you any benefits like airplane miles for trading.”.

Now you see a case and point why I do business where I do business. I trust them. They are honest. They play it straight and they don’t monkey around.

Some people have ethics. Some people think they are above it all. Since I have branched out from trading, I have noticed the “real world” acts a lot differently. The ethical standards are a lot different. I may have gotten fucked when trading in a pit on a floor but I generally knew who was fucking me and either why, or I could get back at them. In the business world, people screw other people all the time in the normal course of business and it’s not a problem. The business world is a much tougher navigable channel than the trading pit.

And just an aside. Wasn’t Dodd-Frank supposed to end all this crap? Weren’t they going to be able to see into the future and predict this, head it off at the pass? Repeal it, now.

Corzine thought he was above it all. Goldman, Senator, Governor. He is going to find out that he isn’t if MF indeed played fast and loose with customer funds. Ironically, it’s another case where rules and ethics are for the little people.

In my case, I may be direct with people. But I found it pays to be honest and transparent.

Thanks for the link Ace! Greybar Hotel, heh.

9 thoughts on “MF Global Might Be MF Fraud

  1. Jeff:
    Although it’s not the case here, I believe you as a FCM customer could be exposed to another customer in an extreme case: If FCM customer blows up, the clearinghouse will first go after clearing member capital to satisfy the defficiency, and if member firm capital is insufficient, (I believe) the clearinghouse would then go after member firm’s customer seg accounts.

    It’s not likely given the minimum capital required to play as a clearing member, and I don’t believe it ever has happened, but it might could happen. Probably the only way to protect yourself is to ask questions of the FCM about other customers and what risk controls they have against such potentially disastrous positions as unhedged short options positions.

    1. There used to be, but is not anymore, good to the last drop clearing which you are referring to.  The CME now has an insurance policy that covers defaults-and so do the other clearing houses.  

      MF doesn’t risk the clearing house at all.  

  2. Oh, but I read that gov’t was too big and should stay out of the regulation business… so the job-creators, err, big business, could do a better job of regulating themselves. – You mean ain’t so?

    1. Did Dodd-Frank do anything to foresee this?  Who was hurt?  Taxpayers?  Nope, just shareholders, employees of MF, and people who cleared there.  This is classic keep govt out of it.  

  3. Interesting to find out you do business with Shepard International.  I worked for Maduff & Sons in the early 1980s, and got to know Bill(Kirk Malcom too).  If there’s any one thing I came away with is the integrity of Bill……and his friends.

    Tell them I said hello, but I haven’t seen any of them for 10-15 years……

    Dale Durchholz

  4. seems to me that Corzine is no different than the shnook bank teller who borrows money from the till because he has a hot tip on the 7th race and continues borrowing hoping to hit a winner and cover what he has taken.  Those guys spend time at the graybar hotel.  Wonder if stripes will make Corzine look slimmer . . .  

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