Business Leaders - Current event - MFG & PFG BK

                In October 2011, MF Global went under. It vanished like a vapor in the wind overnight. It marks an important event, because over a billion dollars simply went “missing”. You might ask yourself how a billion dollars simply go missing. You’d be in the majority asking this question. MF Global was an FCM (futures commission merchant). An FCM takes an order from a customer, and executes it in the futures market. Specifically, customer money is to be segregated from the firm’s money. You would think that someone who had been a senator, a governor, and the former head of Goldman Sachs (John Corzine) would understand this. Apparently this is not the case. In July 2012, another FCM, Peregrine Financial Group also went under. The CEO (Russell Wasendorf) tried to kill himself, and left a suicide note in the car for his employees. The same day this happened, fund withdrawals weren’t allowed, and the next day, the company files for bankruptcy.

                Some of the money in the MF Global debacle has been recovered, but only a portion. What is most disturbing about these events though is the complacency of the regulators. Corzine was allowed to testify in Congress that he simply didn’t know where the money went, and that there were far too many transactions that took place that day, and the money simply got lost in the shuffle. A billion dollars, lost in the shuffle. Philip Johnson, writing in Futures and Options Weekly suggests that senior management off on on large fund transfers. It’s obvious that this wouldn’t make a bit of difference in either the case of MF Global or Peregrine, as both CEOs were complicit in the commingling of what were supposed to be customer segregated accounts.

                It’s truly a shame that these events were allowed to happen. If you can’t trust your FCM, then you can’t trade futures contracts. This leads to uncertainty for both producers (i.e., farmers) and consumers. Price uncertainty reduces liquidity, and in turn, leads to higher prices for consumers in the long run. What is truly startling is that only Peregrine has been criminally charged for his actions. One can only speculate if the political clout of Corzine, a regular White House guest, has played any role in charges not being filed against him.

Touryalai, Halah. "MF Global Clients Get $130M From CME But $1.6B Is Still Missing." Forbes.Com (2012): 30. Business Source Complete. Web. 22 July 2012.

Johnson,  Philip McBride. “Johnson: Addressing The MF Global Probnlem with Senior Management Sign-Off.” FOW: The Global Derivatives Magazine 480 (2012): 1. Business Source Complete. Web. 20 July 2012.

Rothfeld, Michael. "Trading Firm CEO: I Spent It." Wall Street Journal. 18 July 2012: n. page. Web. 22 Jul. 2012. <http://online.wsj.com/article/SB10001424052702303754904577533121162497112.html>.