Attorney: MF Global Clients Can File Arbitration to Obtain Lost Money

Kansas City, MOClients who were affected by the MF Global bankruptcy and have had their funds frozen may be eligible to file an arbitration against the company to recover lost money. Diane Nygaard, a securities and commodities attorney at Kenner Schmitt Nygaard, LLC, says among those affected by the MF Global transactions are farmers, who were hedging their crops. They, and others who invested with MF Global, may have to file an arbitration if they hope to see their money again. In fact, an arbitration might be their best hope of seeing their money.

MF Global, one of the largest remaining securities and commodities brokerage firms, filed for bankruptcy on October 31, 2011. According to current reports, more than $1.2 billion of customers' money is missing. The FBI is looking for the money, and the trustee announced today that perhaps $700 million was wired to the UK before the bankruptcy was filed. According to Nygaard, "there will likely be criminal prosecutions, but in order to recover their lost funds, customers of the firm must file a civil action, such as an arbitration. The sooner such arbitrations are filed, the more likely it is that the customer will be compensated. Arbitration is a better option for people who have suffered large losses than being a member of a large class action.

"Many ag businesses with accounts at MF Global were producers, elevator operators, and ag processors who hedged their commodities," Nygaard says. Their accounts were frozen when MF Global filed for bankruptcy. If their positions went against them, they were unable to exit their positions, and their losses might have increased. They are also denied access to the collateral they put up to hold the positions, thereby being deprived of necessary operating capital.

The good news for MF Global clients is that they can file an arbitration to recover their money, even though MF Global has filed for bankruptcy. MF Global and its control persons were registered with and supervised by the Commodities Futures Trading Commission (the "CFTC"), the Securities and Exchange Commission (the "SEC"), the National Futures Association (the "NFA") and FINRA. As such, customers of the firm are able to file arbitrations to recover their losses in arbitration tribunals at the NFA and FINRA. Approximately 38,000 MF Global customers may have been adversely affected by the firm's actions. Under state and federal securities and commodities statutes, those persons who "controlled" MF Global, such as the officers and directors, are jointly and severally liable for losses caused the firm's customers. Jon Corzine and other officers and directors of MF Global are subject to the jurisdiction of NFA and FINRA arbitration tribunals because they are members of these organizations. Customers, therefore, can proceed against them in arbitrations, Nygaard says.

Under the Codes of Arbitration, customers are entitled to recover their losses, including other business losses sustained as a result of the firm's wrongdoing. In addition, they can recover the costs of the proceeding, attorney's fees, interest and punitive damages, if they can prove intentional or reckless wrongdoing.

Unlike lawsuits, and class actions in particular, which can drag out for years and result in fairly small individual recoveries, arbitrations are generally completed within a year. Time is of the essence, according to Nygaard. Arbitration is first come, first served, so early filing is important.

"People are in a wait and see mode, hoping that money will be returned to them," Nygaard says. "With today's news from the bankruptcy trustee, the funds that apparently went to the U.K. will be difficult to recover. This is a signal that action should be taken. Not all of the funds will likely be recovered, so customers should file their arbitrations to get in line. The control persons of the firms are legally liable for the firm's wrongful conduct, but their insurance coverage and assets will be limited."