* Says shortfall could be about $1.2 billion
* Regulators earlier pegged shortfall at $600 million
* Pressure mounts from politicians, customers
* MF Global parent, JPMorgan seek outside administrator
By Nick Brown and David Sheppard
NEW YORK, Nov 21 The shortfall of commodity
customer funds at MF Global Holdings Ltd may be
around $1.2 billion, about double initial estimates from
regulators, the trustee liquidating the company said on
The news was a blow to customers still hoping to get more
of their cash out of frozen broker accounts and raised new
questions about why the authorities managed to locate only
about 60 percent of the segregated customer funds three weeks
after the parent firm's Oct. 31 bankruptcy.
"I'm flabbergasted," said Tom Ward, a retired Chicago Board
of Trade member whose two sons cleared their futures trades
through MF Global and have been blocked from accessing their
money. "The bottom line is, there's going to be a haircut
involved. It's devastating, what this has done to the
Monday's announcement was trustee James Giddens' first
public statement on the size of the shortfall, which regulators
initially said was about $600 million.
Regulators are investigating what happened to the money and
whether MF Global may have improperly mixed customer money with
its own -- a major violation of industry rules. No charges have
Hours after the statement, the bankrupt MF Global parent
filed court papers along with JPMorgan Chase & Co , one
of its key lenders, seeking the rare appointment of a separate
trustee to take over the company's assets in bankruptcy.
Such appointments are reserved for cases in which a
company's executives are accused of wrongdoing or when it may
otherwise be in the estate's best interest. JPMorgan, which
pledged $8 million of its collateral to keep MF Global afloat
during bankruptcy, agreed to increase that pledge to $26
million if a trustee were appointed, according to the filing.
The request is on the agenda for a hearing tomorrow
afternoon in U.S. Bankruptcy Court in Manhattan.
An MFGlobal spokeswomen declined to comment on the case.
In Monday's statement, Giddens said he currently controls
about $1.6 billion of the brokerage's funds that he can use to
pay back customers. His plans to pay back 60 percent of
customer funds by early December would nearly exhaust that
The sharply higher estimate of the shortfall raises
questions about the investigation, said Tim Butler, an attorney
for a group of customers demanding a fuller payback.
"What did the CFTC know three weeks ago and what do they
know now?" Butler said. "If the amount has changed that much
over three weeks, where did the money go? What were
(regulators) looking at before?"
Leaders on Capitol Hill have entered the fray with calls
for hearings and accountability.
Sen. Chuck Grassley, R-Iowa, said the CFTC should "do
everything possible" to get more information to customers on
the status of their funds.
"Unlike the big banks, the average farmer who lost money in
this fiasco can't afford to hire an attorney and attend
proceedings in a Manhattan courtroom," Grassley said in a
MF Global was run by former Goldman Sachs & Co Inc
chief and New Jersey governor Jon Corzine before its
bankruptcy. The Chapter 11 filing came after the New York-based
company revealed it made a $6.3 billion bet on European
sovereign debt. Corzine resigned on Nov. 4.
On Sunday, Reuters reported that, based on initial reports
of what was supposed to be segregated for customers, the
trustee appeared to be keeping about $3 billion on hand to
cover the shortfall.
Customers had been clamoring for more specifics, saying
that was too large of a cushion -- a notion Giddens rejected.
"Restoring 60 percent of what is in segregated customer
accounts ... would require approximately $1.3 to $1.6 billion
to implement," or nearly all the money at the trustee's
disposal, he said.
Giddens previously transferred more than $2 billion to
other brokers, giving most customers access to a portion of
Sen. Pat Roberts, R-Kan., said legislators should call on
Corzine to testify about his former company's actions. Roberts
said in a statement on Monday that the Senate Committee on
Agriculture, Nutrition and Forestry should hold a special
hearing on the matter.
If the trustee does exhaust the funds he now controls, his
focus would shift to going after monies that may belong to the
brokerage, but may be tied up in foreign depositories, or may
be part of the shortfall, Giddens spokesman Kent Jarrell said.
"We can't distribute money we don't have, but we do have
legal means for going after other assets," Jarrell said.
The Commodity Futures Trading Commission and other
regulators are investigating MF Global.
CFTC Commissioner Jill Sommers refused to speculate on how
the $1.2 billion figure might compare with earlier estimates.
"From the very beginning we have tried as much as possible
to never use a figure, out of fear that it's not right," said
Sommers, who has been leading the agency's investigation into
MF Global after Chairman Gary Gensler recused himself from the
probe because of his ties to Corzine.
"Until the final reconciliation (of accounts) is done, you
don't know what the shortfall is."
CME Group Inc , operator of the clearinghouse for
most of MF Global's customers, declined to comment.
Commodity customers say they have more questions than
answers about MF Global's collapse and the safety of their
Sean McGillivray, vice president of Great Pacific Wealth
Management, still has about $5 million tied up in MF Global for
his customers. He was aware of the latest estimates of the
shortfall, but wants exact figures.
"It would be in the best interest of all clients, brokers
and anyone else caught in this mess to know just how much has
been transferred ... and how much is supposed to be there," he
said. "You could do this with an abacus and it would take less
A spokesman for the Commodity Customer Coalition in
Chicago, which represents more than 7,000 former MF Global
customers, said it was unclear how much of the trustee's
estimate related to possible co-mingling of customer money.
Some of the missing money could be tied up overseas, said
spokesman John L. Roe.
"We're hopeful given what was accounted for initially that
more of the money will be found and that the trustee will work
with us on an expedited claims process for customers," he
In a sign that even distressed investors are losing faith
in a decent return, MF Global's bonds fell to an all-time low
below 30 cents on the dollar, according to Tradeweb, down more
than 5 cents on the day. The $325 million in 6.25 percent notes
were issued at par in August.
Some investors have targeted other financial institutions.
Two pension funds have sued seven banks, including Bank of
America Corp , JPMorgan and Goldman Sachs, over
prospectuses that allegedly concealed the problems that led to
The trustee's case is In re MF Global Inc, U.S. Bankruptcy
Court, Southern District of New York, No. 11-2790.
The MF Global bankruptcy is In Re MF Global Holdings Ltd,
in the same court, No. 11-15059.