Mertz speaks about MF Global at 105th annual MGFA meeting
By Janet Kubat Willette
jkubat@agrinews.com
Date Modified: 02/16/2012 9:40 AM
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MANKATO, Minn. — Minneapolis attorney Stephen Mertz is advising his clients involved in the MF Global bankruptcy to wait and see what happens.
Mertz spoke Feb. 1 at the 105th annual Minnesota Grain and Feed Association annual convention in Mankato. More than 500 grain elevator managers, employees and cooperative directors from across the state attended the Feb. 1-2 convention and trade show.
Jan. 31 was the deadline for securities and commodity customers to file claims for return of property with the trustee handling the bankruptcy.
There's really nothing more for claimants to do but wait.
"I don't have a good sense of how successful he will be in getting assets back or how long it will take," Mertz said.
The New York Times reported Jan. 31 that investigators have determined what happened to nearly all of the customer money that disappeared around the time of its bankruptcy, but they they are uncertain about whether they can get it back.
MF Global filed for bankruptcy on Oct. 31. The MF Global bankruptcy is the eighth largest in U.S. history. An estimated $1.2 billion in client funds are missing, including money owed Minnesota farmers and grain elevators.
Congress jumped into the fray soon after the company went bankrupt and client funds were found missing.
Executives from the company, including Jon Corzine, former governor of New Jersey and U.S. senator from the state, were called before Congress to testify. The executives testified they didn't know what happened to the money.
"The 'I don't know' is entirely possible," Mertz said.
He referenced the MJK Clearing case, in which his law firm was involved. MJK Clearing was a Minneapolis-based broker-dealer that failed in September 2001. In that case, the firm was the victim of a fraud perpetrated on it. One day, the money was there, 24 hours later it was gone.
Mertz emphasized he doesn't know what happened in the MF Global case. He's read press reports that put the blame on what turned out to be risky investments in Europe, but what happened won't be known until the bankruptcy trustee files his final report, which could be years from now.
The trustee has been filing interim reports to let the court and creditors know what's going on, Mertz said. The most recent report was filed in mid-January.
Before filing for bankruptcy, MF Global was a respected commodity and securities broker.
On March 31, it had total assets of $28.3 billion, total liabilities of $27.4 billion, U.S. segregated funds of $8.5 billion and foreign secured funds of $1.1 billion, for total customer funds of $9.6 billion, Mertz said.
By Aug. 31, total segregated funds were $7.3 billion. On Oct. 31, total customer property was supposed to be $5.45 billion, he said. Segregated funds were to be kept separate from other company funds.
MF Global is being liquidated under the Securities Investor Protection Act because it was a registered securities broker-dealer and member of the Securities Investor Protection Corporation, Mertz said. Those 330 securities accounts are why the case is proceeding as a liquidation.
That is a good thing for all its customers because under a SIPA proceeding the administrative costs of the case are covered, which isn't the case in a commodity proceeding, Mertz said.
So far, the bankruptcy trustee has made three separate bulk transfers to Future Commission Merchants, resulting in about 72 percent of funds being returned.
Mertz said he doesn't know if MF Global broke the law or if new laws are needed to protect investors. He's waiting for the final report from the trustee to outline conclusions.
It's also possible that the trustee will pursue MF Global officers and directors to recoup losses. Typically, companies carry officer and director insurance to cover this.