NOV
18
2011

MF Global Proves Sanctity of Segregated Funds is Just a Myth


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Interview with Trends Research founder Gerald Celente, who had his own six figure gold investment account completely looted by MF Global‘s chapter 11 trustees, and he is fighting to get it back. Also interesting is how certain higher-profile clients such as the Koch brothers and others clearly must have known of the cratering positions and imminent collapse of MF Global, as $$billions of dollars of accounts were “coincidentally” withdrawn just before the MF “house of cards” collapsed.

I don’t believe that people truly understand the ramifications of what has happened over at MF Global.  People still seem to believe that clients who had money with MF were basically gamblers and “should have known better” by placing their money with “more secure” entities such as Interactive Brokers.  That’s not to say Interactive Brokers is not secure (especially as they “seem” to practice extremely sound risk management). But what happens when one of their banks or counterparties also decides to “waive” their account holders’ rights? And what exactly would have given customers of MF any less reason to believe that MF Global would be any less secure, especially since the Federal Reserve granted them “Primary Dealer” status last year? Regulations are very strict on “segregated funds”.  Those funds “should” actually be “SAFER” than a straight-up bank account (because the funds should generally be locked away at either the CME as margin or sitting in Treasury Bills so the banks can’t even lend that money out in REPO markets).  If an Occupy Wall Street protester stole a sandwich, they’d probably be thrown in jail for 5 years.  Jon Corzine recks New Jersey, and a year later, wrecks MF Global and steals HUNDREDS of MILLIONS from 150,000+ client accounts to cover more reckless gambling debts, and he’ll probably end up being the next secretary of the treasury.  This guy should be hanged and held up to the standards of the Hammurabi Code (If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death). If such a “code” were implemented, I’d bet such horrendous thefts and shenanigans would all but disappear. Instead, we have banks stealing $$BILLIONS from clients through cockamamie schemes, then paying $100 MILLION to the SEC without admitting or denying guilt while they pocket the rest, still leaving the clients/investors out most if not all of their losses. This is likely the tip of the iceberg, as there is no way to know how many other firms may have also made similarly reckless bets with client funds (or are unknowingly directly connected to others that do).

To help clarify what this really means, here is the “Safety of Funds” assertions by two reputable futures clearing firms:

(DormanTrading) “The funds in your account with Dorman are held as “Customer Segregated” funds. Our principal bank is Harris, NA, a subsidiary of BMO Financial Group of Toronto Canada. The segregated funds that Dorman holds at Harris, are primarily invested in US Treasury Bills, with the remainder in cash or deposited with the Chicago Mercantile Exchange as margin deposits. The Treasury Bills at Harris are specifically identified to Dorman and on Dorman’s books they are specifically identified to those accounts that have asked us to invest their funds.

The segregated account structure of your futures trading account protects you from suffering a loss, should your broker, your clearing firm, Dorman, or Harris file for bankruptcy. This segregated structure means that your funds on deposit are not subject to any offset, indebtedness, obligation, or the liabilities of any entity besides the customers themselves. These regulations are in place so that neither your clearing firm, Dorman, nor their bank Harris can dip into the customer segregated funds to offset losses elsewhere.” – Dorman Trading Safety of Funds

(RCG-Direct) “Pursuant to the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) regulations, Rosenthal Collins Group LLC (RCG), a Futures Commission Merchant (FCM), is required to treat all customers’ money, securities and other property received to margin, guarantee or secure futures or options on futures trades, as customer property. With regard to futures and options on futures accounts, RCG is required to account separately for and segregate customer money, securities and property and not to commingle those assets with RCG’s own operating assets. Customers’ segregated assets cannot be used to margin any other person’s trades. These segregation requirements apply to futures and options trades on exchanges located in the United States.” – Rosenthal Collins Group Customer Protection

Understanding Big Money, Banks, and the REPO Market…

(MartinArmstrong) “When you deal in REAL money, there is a problem. How do you store it? You can’t just put a billion on deposit at a bank. They will sell it every night and don’t have to tell you. If the REPO market blows up and you go to the bank and say I want my billion, they lost it, and so you turn to FDIC to collect your $100,000. Right! The ONLY way to park serious money is in treasuries.” – Will a Downgrade of USA FROM AAA Really Mean Anything? (MartinArmstrong)

(PeterBrandt) “According to the Commodity Exchange Act (the overarching law governing futures trading) customer funds at futures commission merchants ‘shall not be commingled with the funds of such commission merchant or be used to margin or guarantee the trades or contracts…of any customer or person other than the one for whom the same are held.’ CFTC Regulation 1.25 provides that:

‘No futures commission merchant and no clearing organization shall invest customer funds except in obligations of the United States, in general obligations of any State or of any political subdivision thereof, or in obligations fully guaranteed as to principal and interest by the United States. Such investments shall be made through an account or accounts used for the deposit of customer funds and proceeds from any sale of such obligations shall be re-deposited in such account or accounts.’ ” – MF Global: Proof that the U.S. government is not able or willing to protect investors (PeterBrandt)

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