NEW YORK/WASHINGTON (Reuters) - A U.S. regulator said he thinks “something nefarious” occurred at MF Global, deepening the criticism facing the fallen futures brokerage.
As customers worried about whether they will recoup the full value of their accounts, a trustee winding down MF Global’s broker-dealer unit said separately on Tuesday that clients may be able to submit claims for losses within weeks.
Bart Chilton, a Democratic commissioner at the U.S. Commodity Futures Trading Commission, told Reuters Insider that U.S. regulators are closer to finding out what happened to roughly $600 million in missing customer money.
“The money is not where it should be. I think something nefarious has happened, potentially something illegal,” he said.
MF Global MFGLQ.PK, which lost on big bets on European debt, filed for bankruptcy on October 31 after a deal to sell itself to Interactive Brokers Group (IBKR.O) fell apart.
A huge shortfall was discovered in the customer accounts of the company’s brokerage, and the CFTC is among the authorities investigating whether MF Global may have improperly mixed that money with its own funds.
An MF Global representative was not immediately available for comment. Neither MF Global nor its former chief executive, Jon Corzine, has been charged with wrongdoing.
PAYING OUT WHAT‘S THERE
There are growing concerns that regulators may be unable to find the missing customer funds, or that the money may be tied up in other assets.
Dealing with those concerns is primarily the job of James Giddens, the trustee.
Giddens on Tuesday took a step toward getting customers some of their money back, asking MF Global’s bankruptcy judge, Martin Glenn, to approve an expedited process whereby commodities customers would submit all claims by January 27.
In a court filing, Giddens described a proposed process for mailing claims forms, reviewing claims and making payouts “as promptly as possible,” likely in increments.
The process is set to be discussed at a hearing before the judge in U.S. Bankruptcy Court in Manhattan on Wednesday.
If Giddens and federal regulators are unable to find the missing customer cash, customers with commodities trading accounts could be forced to take significant losses.
While it charts its course through bankruptcy, MF Global is surviving on $8 million in cash that had been collateral for JPMorgan Chase & Co (JPM.N), the agent for a $1.2 billion syndicated credit line.
MF said in a Monday court filing that it has extended through November 21 its window for spending that cash, giving it five extra days to seek longer-term funding.
Whether it can find such funding will impact the nature and speed of its restructuring or liquidation.
Customers have clamored for resolution of the missing money issue. Several customers have asked Glenn to appoint a customer representative to the official committee of unsecured MF Global creditors.
Typhon Capital Management CEO James Koutoulas, who has separately asked Glenn to invalidate a lien putting JPMorgan ahead of customers for payback, told Reuters on Tuesday he may seek formal permission to join the committee.
Two current members of the committee, meanwhile, want permission to keep trading MF Global securities during bankruptcy.
Bank of America (BAC.N) and Elliott Management Corp each filed court papers asking Glenn to allow them to trade stock, debt and other MF Global securities as long as they impose systems to separate their trading from their role on the committee.
Judges in a few major bankruptcies, including Lehman Brothers LEHMQ.PK, WorldCom and Enron, have allowed such trading by creditors’ committee members, Bank of America said in its court papers seeking permission for the trades.
MF’s bankruptcy case is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.
The brokerage liquidation is In re MF Global Inc, in the same court, No. 11-2790.
Reporting by Nick Brown in New York and Alexandra Alper in Washington; Editing by Martha Graybow and Tim Dobbyn