U.S. District Court Judge Victor Marrero has ordered MF Global to pay customers over $1.2 billion. The defunct brokerage firm left an about $1.6 billion shortfall for approximately 38,000 customers when it filed for bankruptcy protection in 2008.
Now, with this court order, along with the attempts of a liquidation trustee to get back the missing funds, customers are going to get almost all of their money back. Also, in addition to paying certain creditors and customers, MF Global will pay a $100 million penalty.
The brokerage tanked financially after it revealed that it had placed bets worth billions of dollars on high risk European debt. As customers started to leave MF Global in bulk and trading partners demanded bigger margin payments, the firm used customer funds for its own purposes (more than a billion dollars was taken out of their accounts) and did not replace them. This is not allowed. Also the estimated shortfall was about $1.6 billion.
It was the US Commodity Futures Trading Commission that got the federal court consent order against MF Global obligating the latter to pay the restitution. The CFTC filed its complaint against MF Global in June charging the firm and others with unlawfully using the funds of customers. The agency also accused the brokerage of making false statements to cover up the shortfall in filings it submitted to the regulator.
In the consent order, MF Global admits to the allegations related to its liability on the basis of omissions and actions committed by its employees. (Also, a bankruptcy judge has just cleared the firm to repay all the funds it owes to commodity customers both in the US and abroad.)
Just last week, Judge Marrerro rejected Corzine’s attempt to get a shareholder securities lawsuit against him and other MF Global executives dismissed. The plaintiffs are accusing them of misleading investors about the high-risk bets that were made on European debt. In his decision, Marrero commented on how the defendants appeared convinced that none of them did anything wrong. He speculated that maybe instead, “supernatural forces” or “stuff happens” was to blame for the firm’s spectacular “multi-billion dollar” crash. Meantime, the CFTC’s civil case against MF Global Holdings Ltd, ex-CEO John Corzine, and ex-Assistant Treasurer Edith O’ Brien have yet to be resolved.
While it is a positive that customers are finally getting their money back—it doesn’t mean that this makes up for the last two years when they were unable to access their funds. Some folks were shut out of trading while others lost their businesses.
Our securities lawyers at The Resolution Law Group were among those that investigating MF Global claims of customers. We represent institutional and individual investors in getting their losses back.