I know someone who got his hat handed to him in the MF Global scandal: You’re looking at him. As head of the Standards and Financial Market Integrity Division at CFA Institute, it pains me greatly to admit I have been hornswoggled by one of our industry’s own. What’s at stake? Less than my life savings, but more than the cost of covering some college expenses. My first reaction: What sort of “MF” deal is this? (The abbreviation “MF” could stand for several things, but I retain hope that it’s not “monstrous fraud.”)
However, as the rather-convoluted details continue to leak out those hopes, at best, are waning. Whether client funds were illegally comingled with proprietary trading accounts, the extent of regulators’ knowledge that the MF house was built of cards, and the degree to which client funds can be rescued all remain faint details.
My first action was to ring the trading desk handling my account. After waiting for my call to be answered in the order received, I finally was able to voice my deep MF concerns. “There is no further information on the status of accounts at this time,” the representative informed me. “In that case,” I said half-jokingly, “sell MF Global at the market.” “Too late” was the smug reply. Since then, several calls have gone poorly. In one, I was offered the option of ordering a check to be sent for the account balance.
While I make light of these circumstances, it is purely a defense mechanism. How could this happen to me, of all people? After all, I am supposed to know the difference between an ethical operator and not. The truth is, it often is very difficult to tell them apart. Over the two decades I’ve been with MF Global and its predecessor firms, nothing in particular tipped me off that something was amiss. That makes protective regulation and effective regulators all the more important. For fans of proprietary trading being permitted at firms whose primary function is client business and accounts, former Fed Chairman Paul Volcker has some ideas. Moreover, for pundits in support of further starving government budgets for regulatory monitoring and enforcement, this should give pause.
The timing of something like MF Global is always bad. But given that the financial services profession is last on everyone’s list for trust and ethics, the moment could hardly be worse. Maybe it is only wishful thinking to expect someone at MF Global to have stood up and shouted from the roof tops. As a loyal client for over 20 years and an observer of ethical practice for even longer, I don’t think so. I’m reminded of the mantra, “If you see something, say something,” — which is a good starting point for this industry.
I will keep you advised of my MF odyssey. Nothing arrived in today’s mail. But I did see this unabashed statement today, still posted on the company website:
Segregation of Customer Funds: Probably the cardinal safeguard of both futures and securities customers’ funds required by the relevant provisions of the Commodity Exchange Act, the Securities Exchange Act of 1934 and the rules and regulations of the CFTC and the SEC is that they be segregated from the funds of the FCM/broker-dealer and may not be used to meet any obligations of the FCM/broker-dealer. A brief description of these provisions is set forth below.
I wonder, cold comfort or glimmer of hope? Probably time to update the website.
Please comment on the MF Global situation.