Halloween marked the 12-year anniversary of the collapse of MF Global, the eighth largest bankruptcy in U.S. history, where a major political donor caused a multi-billion dollar shortfall of customer segregated funds by transferring them to cover losses on proprietary trading.
James Koutoulas is co-founder of the Commodity Customer Coalition and trustee of the LetsGoBrandon.com Foundation.
It should if you’ve been following the trial of FTX founder Sam Bankman-Fried, aka SBF, who was just convicted on seven counts of criminal charges and faces up to 110 years in prison. The federal criminal case was almost unprecedented in efficiency, resulting in a conviction less than a year after FTX collapsed and charges were brought.
Although SBF’s trial was as speedy as they come, his hundreds of thousands of potential victims will likely have to wait a long time for restitution. An estimated $8 billion worth of customer assets were lost in the FTX fraud. While the exchange’s current leadership — led by bankruptcy expert John J. Ray III, of Enron fame — has been slowly clawing back some of those funds, it is still an open question how much and when any assets will be returned to FTX users.
The quick criminal conviction of SBF stands in sharp contrast to a very similar case: MF Global.
MF Global was a 200-year-old commodity broker which installed former Goldman Sachs co-CEO Jon Corzine as CEO in an attempt to turn the sleepy broker into an investment bank. Corzine then risked virtually all of MF Global’s firm capital into risky distressed European Sovereign Debt — at 30:1 leverage.
Corzine used convoluted and offshore systems to hide this concentrated risk from credit rating agencies for 17 months waiting for his trade to hopefully come to fruition. But before that happened the risk was exposed, MF Global’s credit downgraded and the firm received a billion dollar margin call from its biggest lender, JPMorgan Chase.
Corzine then ordered the falsification of a segregated account statement to give himself plausible deniability to transfer customer customer funds to meet his margin call. This transfer was done on taped lines and resulted in the first shortfall in customer segregated funds in U.S….