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Caught Between MF Global And The Tax Man
There is still significant money missing from MF Global customers’ futures accounts. The bankruptcy trustee sent MF Global customers 2011 Form 1099-Bs showing their realized and unrealized trading gains and losses from Section 1256 contracts. (Note: The cost-basis reporting crisis does not extend to futures. Taxpayers and tax preparers can rely on Form 1099-Bs for futures, whereas they cannot for securities 1099-Bs.)
MF Global’s bankruptcy trustee James W. Giddens added this note to the Form 1099-Bs: “Although you may not have recovered the entire value of your MFGI account in the SIPA Proceeding (bankruptcy process), your Form 1099 reflects all transactions credited to your MFGI account during 2011. You should consult your tax advisor to determine whether you may claim a deduction or loss for income tax purposes as a result of your not having recovered the full amount of your account.”
Giddens doesn’t say which year the loss may be taken. It’s the consensus of our CPAs and tax attorneys — and the consensus of others we have seen on the Internet — that a MF Global deposit loss recognition event most likely occurs after 2011.
Tax law for writing off deposit losses
The loss is not determined and the trustee still hopes to recover the entire amount (or much more) of missing customer monies. Certainly, they should, as these monies were taken inappropriately and as I pointed out in my Dec. 9 Forbes blog “How To Pay Back MF Global Customers 100%,” why can’t those last-minute transactions to pay counterparties with customer funds be reversed, and the monies recovered? I still believe that not doing this recovery is illegal and wrong. But, this has no effect on my discusson of tax posture.
Tax law for deposit impairment, casualty or theft loss or capital losses all require a known loss and a realization event of that loss. Missing MF Global monies are being recovered slowly and some hold out hope for full or significant recovery. Although the bankruptcy and liquidation happened Oct. 31, 2011 and some courts ruled in early December 2011 on certain matters, the missing money file remains open and that is telling for tax purposes.
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Recent: Jon Corzine, MF Global
(Bloomberg) — Bill Fleckenstein, president of Fleckenstein Capital Inc. and a futures customer of MF Global Holding Ltd.’s brokerage unit, talks about the prospects of getting back the money he is owed and the legal liability of former MF Global Chief Executive Officer Jon Corzine over a transfer of funds from a customer account. Fleckenstein speaks with on Bloomberg Television’s “InBusiness With Margaret Brennan.”
(Bloomberg) — James Koutoulas, chief executive officer of Typhon Capital Management and president of the Commodity Customer Coalition, and Douglas Burns, a former federal prosecutor, talk about an internal e-mail from MF Global Holdings Ltd. employee Edith O’Brien linking former CEO Jon Corzine to the transfer of funds from a customer account to meet an overdraft with JPMorgan Chase & Co. The Commodity Customer Coalition was formed out of the liquidation of MF’s brokerage. Burns and Koutoulas speak with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s.
Criminal Defense Attorney Marc Fernich on CNN’s Erin Burnett OutFront talking about Jon Corzine, the former chief executive of MF Global new email about missing funds.
Media Runs Defense For Corzine After MF Global Revelation
Email: Corzine directly ordered transfer of stolen customer funds
The media has predictably leapt to former MF Global head John Corzine’s defense following the revelation that $200 million dollars in customer funds was stolen, “per JC’s direct instructions,” by regurgitating the talking point that Corzine was unaware of the fact that the money was taken from clients.
A memo released by the House Financial Services subcommittee contradicts Corzine’s claim, made under oath before Congress, in which the former New Jersey governor claimed, “I did not instruct anyone to lend customer funds to anyone.”
$200 million dollars in customer funds, part of a $1.6 billion in client money that disappeared, was sent to MF Global’s account with JP Morgan by direct order of Corzine, the email reveals.
“The memo released Friday details an email by Edith O’Brien, an assistant treasurer at MF Global, saying the transfer last October 28 “per JC’s direct instructions” would cover an overdraft in the London account of JPMorgan Chase. “JC” stood for Corzine,” reports Politico.
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Corzine Corzined – Congressional Panel Finds Former MF Global CEO Ordered JPM Fund Transfer
MF’s Corzine Ordered Funds Moved to JP Morgan, Memo Says
Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in a brokerage account with JPMorgan Chase & Co. (JPM), according to a memo written by congressional investigators.
Edith O’Brien, a treasurer for the firm, said in an e-mail quoted in the memo that the transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News. The e-mail, dated Oct. 28, was sent three days before the company collapsed, the memo says. The memo does not indicate whether that phrase was the full text of the e-mail or an excerpt.
O’Brien’s internal e-mail was sent as the New York-based broker found intraday credit lines limited by JPMorgan, the firm’s clearing bank as well as one of its custodian banks for segregated customer funds, according to the memo, which was prepared for a March 28 House Financial Services subcommittee hearing on the firm’s collapse. O’Brien is scheduled to testify at the hearing after being subpoenaed this week.
“Over the course of that week, MF Global’s financial position deteriorated, but the firm represented to its regulators and self-regulatory organizations that its customers’ segregated funds were safe,” said the memo, written by Financial Services Committee staff and sent to lawmakers.
Steven Goldberg, a spokesman for Corzine, said in a statement that Corzine “never gave any instruction to misuse customer funds and never intended anyone at MF Global to misuse customer funds.”
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Lawmakers blast proposed bonuses for MF Global executives
Former clients of MF Global expressed outrage last week over reports that Louis Freeh, the trustee overseeing the company’s liquidation, planned to ask a bankruptcy judge to approve sizable bonuses for nearly two dozen top executives at the failed firm. Now they have allies on Capitol Hill who share their frustration.
Sen. Jon Tester, D-Mont., sent a letter to Freeh calling such bonuses “outrageous,” and Sen. Amy Klobuchar, D-Minn., called the bonus plan “simply unacceptable” in a letter she sent to Freeh. Sen. Chuck Grassley, R-Iowa, said in a statement, “It seems like the last thing the executives should see is a six-figure bonus for trying to undo the mess they helped to create.” Grassley sponsored legislation in 2005 that significantly changed U.S. bankruptcy law.
Late Monday Freeh said in a letter to Tester that he had not made any decisions on possible bonuses for MF Global executives, “notwithstanding reports to the contrary that have appeared in the media.”
When MF Global capsized last October, it left behind an enormous snarl of poorly kept records and customer accounts that had been depleted by as much as $1.6 billion, some of which still has not been found. Some former MF Global clients are said to have received less than 75 cents on the dollar of their money back.
“The mere notion that senior officials of a firm that has failed to account for … clients’ losses should get a performance-based bonus is troubling,” Tester wrote.
Untangling the numerous transfers made during the troubled firm’s final days will be a monumental task, one Freeh’s representatives have argued could be most effectively accomplished by the executives who were there at that time. The alternate option, bringing in outside consultants and accountants, would be more expensive, they said.
The bonuses have been referred to as performance bonuses rather than retention payments. Performance-based bonuses are allowed under bankruptcy law, which has led some critics to charge that performance metrics are set so low as to make the bonuses de facto retention payments.
“The trustee plan needs to get its priorities straight and focus on returning customers’ money rather than rewarding the failed company’s executives,” Klobuchar said in her letter.
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$1.2 Billion ‘Vaporized’ Under Obama Bundler Jon Corzine’s ‘Leadership’ at MF Global
Former New Jersey Governor Jon Corzine had little trouble finding $500,000 in his role as a top Obama campaign bundler, but locating the missing $1.2 billion in customer funds he oversaw as the head of MF Global funds is proving far more difficult–impossible even, reports the Wall Street Journal.
A person close to the investigation told The Journal that a “significant amount” of customers’ money appears to have “vaporized”:
Nearly three months after MF Global Holdings Ltd. collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.
As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a “significant amount” of the money could have “vaporized” as a result of chaotic trading at MF Global during the week before the company’s Oct. 31 bankruptcy filing, said a person close to the investigation.
Many officials now believe certain employees at MF Global dipped into the “customer segregated account” that the New York company was supposed to keep separate from its own assets—and then used the money to meet demands for more collateral or to unfreeze assets at banks and other counterparties as they grew more concerned about their financial exposure to MF Global.
During a House hearing in December, Mr. Corzine said he “doesn’t know” where the $1.2 billion went or is.
