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Federal judge weighs whether to let regulators rein in oil speculators
WASHINGTON — A federal judge on Monday refused to halt efforts by a key regulator to limit excessive speculation in the trading of oil contracts — which is driving up oil and gasoline prices — but hinted that he might soon rule in favor of Wall Street and let speculation go unchecked.
Robert Wilkins, a judge on the U.S. District Court for the District of Columbia, declined a request for a preliminary injunction to halt the Commodity Futures Trading Commission from implementing a congressional mandate to limit how many oil contracts any single financial speculator or company can control.
However, Wilkins told both the CFTC and lawyers for the Securities Industry and Financial Markets Association and the International Swap and Derivatives Association that he expected to make a ruling soon on whether to hear the case. His line of questioning left both sides with the impression that he was concerned about how the regulatory agency has proceeded.
The two influential lobbies for Wall Street sought the injunction hoping to thwart what are called “position limits,” which were ordered by Congress as part of the landmark Dodd-Frank Act in 2010. The act was the broadest revamp of financial regulation since the Great Depression. The limits sought to prevent excessive speculation not just in oil but across the broad range of commodities, including farm products and metals.
Judge Wilkins expressed concern that Congress would direct the agency to impose market-wide limits without detailed study beforehand. President Barack Obama nominated Wilkins to the bench and the Senate confirmed him in 2010.
“That seems to me an astonishing position to take,” the judge told CFTC deputy general counsel Jonathan Marcus, who had said that Congress ordered the agency to first impose limits on oil trading, then other commodities.
Presenting The Three Unscripted Sentences That May Have Cost Jon Corzine His Freedom
Today, in advance of their sworn testimony, each witness to the Senate Agricultural Committee’s MF Global hearing was requested to disclose what their prepared remarks would be. Sure enough, CME executive chairman Terry Duffy did that, and his prepared testimony can be found here.
In and of itself there was nothing unexpected about said speech, the relevant section of which has been transcribed below. Where things got very ugly for Corzine, is when Duffy literally veered from the script, and added three unexpected sentences, catching everyone in the committee off guard (including those who had given up on the testimony which came just after Corzine’s) and which according to most news wires could have buried Corzine’s defense strategy, exposing him for a liar under oath, and potentially costing him his freedom. The video of the relevant 2 minutes is attached below.
First: here is what the Duffy prepared remarks should have been:
Our auditors returned on Sunday, October 30th because we learned from the CFTC that the draft segregation report for Friday, October 28th, which had been provided to the CFTC that day, showed a $900 million dollar shortfall in segregation caused by an “accounting error.” Our auditors, working… Continue reading
Corzine: ‘I Simply Do Not Know Where The Money Is’
Read: STATEMENT OF JON S. CORZINE BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES
A contrite Jon S. Corzine will express both sorrow and a firm defense of his actions Thursday in his first public appearance since the collapse of MF Global Holdings Ltd. in late October.
“Recognizing the enormous impact on many peoples’ lives resulting from the events surrounding the MF Global bankruptcy, I appear at today’s hearings with great sadness,” Mr. Corzine plans to say in testimony prepared for a hearing by the House Agriculture Committee, which subpoenaed the former MF Global chief executive Friday. A copy of the testimony was released early Thursday on the panel’s website.
The testimony Thursday is sure to be contentious. Mr. Corzine, who resigned as chairman and CEO of MF Global after its Oct. 31 bankruptcy filing, is a Democrat and former U.S. senator and governor of New Jersey.
He will face an intense grilling by the Republican-led committee, creating an atmosphere fraught with political drama. Mr. Corzine, 64 years old, received President Barack Obama’s support in 2009 for his unsuccessful campaign for re-election as governor, and more recently held a fund-raising dinner for Mr. Obama.
CME Knew of MF Global Fund Shortfall Before CFTC Regulators
Nov. 16 (Bloomberg) — Examiners from CME Group Inc., the world’s largest futures exchange, found unexplained wire transfers at MF Global Inc. and a $900 million shortfall in client funds during the weekend the failing broker was talking with possible buyers, a person briefed on the matter said.
CME, which was the overseer of MF Global, noticed the shortfall by Oct. 30 — about a day before U.S. regulators said they were told of the missing funds and the broker filed for bankruptcy protection, according to the person, who spoke on condition of anonymity because the review isn’t public.
The futures exchange hasn’t publicly disclosed when it first suspected funds were missing. In a Nov. 2 statement, CME said MF Global didn’t inform CME or the Commodity Futures Trading Commission about the shortfall until Oct. 31. Transfers at MF Global were made “in a manner that may have been designed to avoid detection,” CME said in the statement.
Laurie Bischel, a CME spokeswoman, declined yesterday to comment further on the timeline of the exchange’s oversight of MF Global.
CFTC chairman Gary Gensler was informed of the shortfall in a 2:30 a.m. telephone call from MF Global executives on Oct. 31, Gensler said on Nov. 3.
CME found that the wire transfers involving client funds took place after Oct. 26, when the exchange had conducted a review of MF Global that found the client accounts were properly segregated, the person briefed on the matter said.
Acquisition Talks
Discrepancies over missing customer funds doomed a potential acquisition by Interactive Brokers Group Inc., said Hans Stoll, an Interactive Brokers director and a professor of finance at Vanderbilt University in Nashville, Tennessee. The deal could have averted the bankruptcy filing.
“The board certainly considered that purchase and stepped away from it at a point where it became clear there were lots of uncertainties about the accounts and segregated funds,” Stoll said in a Nov. 1 interview.
MF Global sought bankruptcy court protection after making bets on European sovereign debt and getting margin calls. The firm listed liabilities of $39.7 billion and assets of $41 billion in Chapter 11 papers.
The probe of MF Global’s cash movements is being conducted by the Justice Department, the CFTC, the Securities and Exchange Commission and the bankruptcy trustee’s staff in cooperation with the Securities Investor Protection Corp., James W. Giddens, the trustee, said on his website.
Fluctuating
The CFTC began investigating the missing funds on Oct. 31 and has issued subpoenas, including to PricewaterhouseCoopers LLP, the auditor of MF Global Holdings Ltd., the parent company of broker-dealer subsidiary MF Global Inc. The amount of missing funds has fluctuated since Oct. 31, and the CFTC is currently investigating about $600 million that should have been held in segregated accounts, according to a separate person with knowledge of the regulatory probe.
The agency took the rare step of publicly announcing its investigation, saying it was in the public interest to confirm the enforcement action. Gensler recused himself because of his ties to Jon S. Corzine, MF Global’s former chief executive. Gensler and Corzine worked together at Goldman Sachs Group Inc.
“This isn’t just a lost and found inquiry; it’s a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy,” CFTC Commissioner Bart Chilton, a Democrat, said Nov. 10
The Koch Brothers and MF Global – Friends to the End
So much about the collapse of MF Global, the international commodity firm, has revisited the worst sins of the 2008 financial meltdown. There’s been outsized betting with other people’s money using Wall Street created derivative instruments. Ongoing investigations now show that leverage in these wagers had even eclipsed the worst of the Lehman failure. As in 2008, there’s been the total lack of oversight from regulatory agencies, as customer funds were diverted and used as collateral for Corzine’s wagers and 50,000 accounts are now being moved without the cash that they came in with.
But perhaps the most stunning piece of news we’re getting in the wake of the MF Global collapse is in the clients of the firm who managed to get away scot-free, with no freezing of accounts or capital — particularly the accounts of the mega-cap independent oil company Koch Industries, run by the politically active Koch brothers.
A recent report in Reuters has described the billions of dollars of client accounts that were withdrawn from MF Global in the last few weeks before their collapse, including 8 accounts from Koch industries engaged in oil trade that were transferred to Mizuho Securities after years of a steady and profitable relationship with MF. The Reuters piece concentrates on the possibilities of legal “clawback” of client money if the bankruptcy does not allow remaining client accounts to be made whole.
The Reuters piece misses the point.
WRAPUP 1-CFTC commissioner views MF Global darkly
CFTC commissioner suspects nefarious MF Global activity
- Trustee proposes quick claims process for customers
- Customers seek representation on creditors’ committee
NEW YORK/WASHINGTON, Nov 15 (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 , which lost on big bets on European debt, filed for bankruptcy on Oct. 31 after a deal to sell itself to Interactive Brokers Group 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.
