"The $1.2 billion referred to in the Reuter’s report last week is going to be used to reimburse British and European Customers of MF Global," Nygaard says.The problem is that MF Global transferred money from its US operations to a UK subsidiary in the days before it filed for bankruptcy. That means that money missing from US customer funds—approximately $1.2 billion—is under the control of European regulators, who so far have not ordered that money returned to US clients.
"The trustee in bankruptcy in the US has been trying to locate the missing $1.2 billion dollars in order to completely compensate US customers of MF Global," Nygaard says. "To date, it has not found the 'missing' money. It is possible that at some point, MF Global transferred funds to its UK subsidiary. In any case, $1.2 billion is in the UK, not in the US. At this point, it appears that European customers will be fully compensated because MF Global assets have been found overseas to compensate them, but no such funds are in this country sufficient to compensate American customers.
"This is especially grating to MF Global creditors and investors in this country because the Federal Reserve had only recently appointed MF Global to be one of the handful of American investment firms allowed to directly sell American bonds. This lucrative imprimatur was bestowed on MF Global in early 2011. The Fed initially denied the firm's request to be a 'primary dealer' due to MF Global's history of compliance failures. However, it has been reported that after former US Senator Jon Corzine, MF Global's CEO, met privately with Federal Reserve officials, it received this plum position, only to file for bankruptcy eight months later, taking with it American farmers' and investors' funds."
Although class-action lawsuits have been filed by MF Global shareholders such as the Virginia Retirement System and the City of Philadelphia Board of Pensions and Retirement—many seeking lead plaintiff status in the class action—many smaller businesses that were MF Global clients have also incurred substantial losses. These clients include ag businesses who hedged their commodities with accounts at MF Global. Such clients, including farmers, producers, elevator operators and ag processors, would have had their accounts frozen following the bankruptcy.
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"Farmers often have commodities accounts to lock in the price for wheat, corn, soybeans or other crops they raise," Nygaard says. "Because commodity prices have been extremely volatile the last two years, most farmers engage in some form of hedging. Such hedging is a way to mitigate price risk in a business with many variables beyond a farmer's control. Unfortunately, many farmers' cash, which was meant to be used for fertilizer or seed, is now gone. Some farmers are banding together to file arbitrations to recover their lost operating capital."Commodities investors, including traders and farmers, can file an arbitration to recover not only their losses but also the costs of the proceedings, attorney's fees and interest, and punitive damages, for the failure of MF Global's owners and directors to segregate funds. And, unlike class-action lawsuits, which can take years to resolve, arbitrations are often completed within a year. Customers should file an arbitration early, however, to be sure they are among the first to be heard and to lessen their wait.
