MF Global back on the hot seat
With former MF Global (MFG) executives in the on-deck circle, a group of farmers and members of agribusiness sat across the table from Senate Agriculture Committee members on Capitol Hill Tuesday to discuss the how they have been affected by the now-defunct broker's bankruptcy and alleged commingling of segregated customer money.
Senate Ag Committee chair Debbie Stabenow (D-MI) convened the hearing Tuesday in an effort to learn how MF Global's downfall has affected the farmers, ranchers, grain merchants and others who had invested in MFG before its bankruptcy filing earlier this fall. Since then, up to $1.2 billion of customer funds has been lost through commingling with proprietary investment money and whether that was done in error or intentionally.
"Our farmers and ranchers have lost trust in the system. They believed that there were safeguards in place to protect their money in exactly this situation," Stabenow said Tuesday morning. "A fundamental principle of futures trading is that customer money must always be kept separate from the firm's money."
Committee members and those testifying Tuesday agreed the recovery of 100% of those lost funds should be the top priority in resolving the MFG situation.
"This has had a real effect throughout the industry -- you've got farmers double-margining and people at stress with their lending situations already, so it's imperative we get to the bottom of this," said C.J. Blew, a Moundridge, Kansas farmer and chairman of the board of the Mid-Kansas Cooperative Association. "I am here to ask the committee to make returning customer funds its top priority. The confidence in the system has been compromised, and it's imperative we restore the integrity of that system."
Blew was joined by Roger Hupler, president of Freeland Bean & Grain, a cooperative based in Freeland, Michigan, Jeff Hainline, chairman of Advanced Trading in Bloomington, Indiana, and farmer Dean Tofteland of Luverne, Minnesota, in testimony before the ag committee Tuesday prior to the lawmakers' examination of former MFG CEO Jon Corzine and the firm's former chief operating officer Brad Abelow and chief financial officer Henri Steenkamp.
"I have a customer who has more capital at risk than we do here," Hupler said, characterizing the men and women he's watched lose money from the MFG situation. "He is not a speculator, just a prudent operator. he is selling cash grain and using futures options to hedge risk."
Tofteland, who raises corn, soybeans and hogs, said the MFG situation shook even the most solid certainties in his business. "I called my broker. She said since my money was in segregated accounts, they would be safe," he recalls when learning of growing problems at MFG earlier this fall. "She said nobody's ever lost a cent from a segregated account. The following Monday, I read that customer funds were missing after MF Global filed bankruptcy."
The MFG meltdown left Tofteland locked into short positions he held leading up to the November 9 USDA Crop Production and world grain supply/demand estimate reports, and because his funds were locked up after MFG's bankruptcy and alleged commingling of client funds, he was unable to make adjustments to avoid heavy losses after the USDA data caused a sharp market shift.