Skip to comments.MF Global and the great Wall St re-hypothecation scandal (Where the Money Went - Must Read)
Posted on 12/08/2011 10:49:36 AM PST by mojito
A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MFs dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldnt have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone elses cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.
Current estimates for the shortfall in MF Global customer funds have now reached $1.2 billion as revelations break that the use of client money appears widespread. Up until now the assumption has been that the funds missing had been misappropriated by MF Global as it desperately sought to avoid bankruptcy.
Sadly, the truth is likely to be that MF Global took advantage of an asymmetry in brokerage borrowing rules that allow firms to legally use client money to buy assets in their own name - a legal loophole that may mean that MF Global clients never get their money back.
(Excerpt) Read more at newsandinsight.thomsonreuters.com ...
Seems like victims would still be able to sue for breach of fiduciary duty.
“A loophole appears to have allowed MF Global, AND MANY OTHERS, to use its own clients funds to finance an enormous $6.2 billion Eurozone repo bet.”
Adding emphasis on AND MANY OTHERS
I agree very scary.
Reminds of the adage I’ve seen floating around the web.....
Give a man a gun, and he can rob a bank.
Give a man a bank, and he can rob the world.
ZeroHedge has a similar story going regarding this topic as well. Scary stuff, indeed.
I thought Dodd-Frank fixed every loophole known to man and created financial harmony throughout the world.
Sure... they can sue their bankrupt brokerage. Might get as much as ten cents on the dollar that way, too. Maybe. If they're lucky.
The money's just gone. It was laundered away into private pockets months ago.
Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.
IOW, rehypothecation is institutionalized fraud in which a bank takes your collateral and loses it on one of its own bad loans.
My question is: If Democrat Obama had been the head of MF Global, instead of Democrat Corzine, would Democrat Obama have been a better financial manager than Democrat Corzine?
Actually, no. As you will see if you read the Zero Hedge commentary and the Reuters story, in the agreement between MF Global and its clients, the clients expressly give MF Global permission to hypothecate the client's assets for the business purposes of MF Global which are irrelevant to MF Global's services to its clients.
In other words, MF Global clients cannot claim a breach of fiduciary duty, for they gave MF Gobal permission to use their assets as collateral for credit issued to MF Global for its own purposes. That collateral -- i.e. the assets of MF Global's clients -- has been claimed by MF Global's creditors.
That's why the clients of MF Global won't get their money back.
Does your agreement with YOUR broker contain comparable language? I suggest you check it out.
Good point, forgot about that. Ten cents on the dollar is probably way over optomistic since tort claims take back seat to secured creditors.
Don't have to - my assetts are in gold where no broker can get to them.
you are correct...fraud doesn’t survive
Ironically, Gerald Celente (of Trends Research) who happens to be one of the clients that had a big chunk of money stolen out of his account by MF Global has a favorite saying, "When people lose everything, and have nothing left to lose, they lose it." I hope he doesn't decide to put that statement into action.
Corzine being a Democrat, it will be interesting to see if he gets the same treatment as the executives at Enron.
Thanks for the link
He'll get the same treatment the Democrat executives at Fannie Mae and Freddie Mac got.
Bonuses and government pensions.
For those who have forgotten...
Stock owners in Enron lost $60 billion, the “Greatest Fraud In History.”
Stock owners in Fannie and Freddie lost $125 billion.
Fannie and Freddie bond owners would have lost $160 billion, but the US Treasury stepped in with bail out cash.