Forum Post: SEC Provides Little-Known Way for Broker/Dealers to Keep Annual Filings NON-Public, Without Having to File a Confidentiality Request /// $1.2 Billion in Customer Funds is STILL Missing
Posted 3 years ago on Jan. 15, 2012, 6:27 p.m. EST by MonetizingDiscontent
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$1.2 Billion in Customer Funds is STILL Missing
-January 15, 2012-
MF Global Updates: Forbes, American Banker
Amazing but true, the MF Global story is still red hot, reason being $1.2 billion in customer funds is still missing.
Last Monday in Forbes... http://www.forbes.com/sites/francinemckenna/2012/01/09/the-neverending-mf-global-story-regulators-block-the-truth-from-coming-out/ ...I gave readers a link to some very interesting facts uncovered by Bob English, an independent trader and blogger who has been following the MF Global story on his blog, Economic Policy Journal... http://english.economicpolicyjournal.com/2012/01/scrubbed-mf-global-filing-resurfaces-at.html
His findings raise serious questions about the (SEC) Securities and Exchange Commission’s regulation of MF Global and all broker/dealers. A summary of that post and some additional developments after press time is here. http://retheauditors.com/2012/01/10/mf-global-mystery-the-beginning-of-the-end-or-the-end-of-the-beginning/
It seems the SEC, maybe by design, maybe by careless default, is keeping the truth from the public about what went wrong at MF Global.
PwC’s... http://en.wikipedia.org/wiki/PricewaterhouseCoopers ...report to the SEC of internal control discrepancies at the broker-dealer for 2010 (and there IS one according to the filing index) – is private.
None of the auditor’s reports specific to MF Global’s broker/dealer are available to the public on Edgar for 2011.
“…it appears the SEC has provided a little-known, yet easy way for broker dealers to keep a substantial portion of their annual filings non-public, without having to file a confidentiality request. Several smaller brokers we contacted were not aware of this.
If the internal controls report of MF Global Inc. made it into its 2010 public filing, yet the financial notes did not, was it simply a case of improper separation of the public and private bound filings on the part of the filer? If so, why is the SEC not enforcing substantive error checking, inasmuch as we have found this phenomenon to be quite common for broker filings?
Or, is the SEC selectively determining itself which portions will be public and private, and committing errors (intentional or not) in the process? Recalling the deleted filings of JPM, Goldman, BoA and others, is it possible that what was supposed to be confidential was inadvertently made public, and upon petition from the filer (or its auditor), the entire public filing was simply deleted?”
My column at Forbes also noted that it’s not just the SEC who’s holding back information about MF Global from the public:
The CFTC, who seems to be using leaks... http://www.reuters.com/article/2012/01/06/us-mfglobal-idUSTRE8041SI20120106 ...to the press to deflect attention from its own role and responsibility for keeping an eye on customers’ money, is doing it, too. There is no data regarding status of segregated customer assets for MF Global on the monthly required regulatory report for FCMs posted by the CFTC for September, 2011.
I asked the CFTC:
“Did MF Global submit their data as an FCM for September on time within your required timeframe? If the CFTC received the data on time, why did the CFTC decide not to publish MF Global’s numbers as of September 30th? The full report was posted to the website on November 10, after the October 31 bankruptcy, but the data is “as of” September 30 when the firm was still in business.”
The CFTC spokesperson would not go on record with his response. Based on our conversation and the policies published on the CFTC ebsite of handling this report, I’ve determined that the September 30, 2011 financial statement filings for all FCMs, FCM/BDs, and RFEDs were originally due October 26th. The CFTC gives itself 12 business days after the due date to publish. It appears that organizations were given additional time due to the Veteran’s Day holiday. The Commission states that it “generally” publishes data for active FCMs only. MF Global Inc. declared bankruptcy October 31, 2011. At the time the September data was posted, MF Global Inc. was no longer an active FCM and, therefore, the firm and its data was deleted for the report.
The first private lawsuit naming PwC, the MF Global auditor, as well as several MF Global executives and JP Morgan, was filed last week by some Montana farmers... http://billingsgazette.com/news/state-and-regional/montana/farmers-and-ranchers-sue-over-mf-global-debacle/article_d95e3dd1-0d6c-5f4b-bb84-84ee4eaa68cd.html?oCampaign=hottopics ...Here’s a copy of the original complaint. http://220.127.116.11/wp-content/themes/magazine/PDFs/MontanaMFComplaint.pdf
Are the holding company trustee Louis Freeh and the broker dealer SIPA trustee James Giddens ever going to investigate JP Morgan and auditor PwC? As I wrote here on January 10, the trustees have already given themselves an easy legal out:
Unfortunately for those who will be looking for third-parties like the auditor PwC and the banker JP Morgan to make up the difference in the missing funds, these disclosed conflicts set up an easy out for the Trustees to decline to investigate claims against the parties they have a deep and fruitful business relationship with. It happened before in a case that is too close for anyone involved here to claim ignorance of: Refco. http://retheauditors.com/2007/07/11/pwc-dodges-a-bullet-for-now-with-refco/
Let’s look at the conflicts that the trustees have just with PwC:
PwC is the external auditor for MF Global.
PwC is the external auditor for Man Financial, the firm from which MF Global was spun off.
PwC designed the internal controls for Refco, the firm Man Financial bought after Refco’s fraud drove it to bankruptcy and the firm that became MF Global after its IPO.
PwC was not pursued as a third-party aider and abettor of the Refco fraud because the judge decided that a prexisting conflict between PwC and the trustee’s firm precluded the trustee from personally pursuing PwC. The judge decided not to select another non-conflicted trustee to pursue PwC.
PwC is the auditor of JP Morgan, MF Global’s primary banker and largest creditor.
PwC is the auditor and a client of the SIPA trustee’s law firm Hughes Hubbard.
José R. Hernandez, the Chief Executive Officer of Freeh Group Europe, the consulting firm founded by MF Global Holding company trustee Louis Freeh, is a former European-based partner of PricewaterhouseCoopers (PwC).
PwC is auditor to Goldman Sachs, Corzine, Abelow, and Ferber’s former firm and a firm that bought a significant amount of assets from MF Global in its last days when MF was desperate for liquidity.
MF Global CFO Henri Steenkamp came to Man Financial, predecessor firm to MF Global, from PwC.
Don’t say I didn’t warn you when Judge Glenn allows Freeh and/or Giddens to say later, regarding pursuing claims against PwC, “Move along. Nothing to see here.” PwC is worth more to them alive then severely wounded.
In other news, I penned a somewhat provocative prediction for American Banker on January 3 regarding Jamie Dimon, CEO of JP Morgan.
Jamie Dimon will have the misfortune, I believe, of catching a significant amount of fallout from the MF Global mess. As MF Global’s primary banker, JPMorgan Chase has been consistently accused in the media and by the attorney representing a customer coalition... http://www.hedgeworld.com/blog/?p=3945 ...of taking advantage of the firm’s vulnerable financial state. Bloomberg News reported... http://www.bloomberg.com/news/2011-12-13/jpmorgan-actions-as-mf-lender-likely-to-be-probed-trustee-giddens-says.html ...that the MF Global trustee said “certain” actions of JP Morgan Chase “are likely to be the subject of investigation.”
What JP Morgan Chase may have allowed – the use of customer funds to meet MF Global’s corporate obligations – is something JP Morgan was recently severely sanctioned for in the U.K. The bank’s London unit was fined a record 33.3 million pounds... http://www.fsa.gov.uk/pages/Library/Communication/PR/2010/089.shtml ...by the FSA, Britain’s financial regulator, for commingling client funds in its futures operation.
Some commenters were not crazy about the tone of the column. Or the title. You be the judge: