02 April 2012

More Evidence of Fraud at MF Global and the Intent to Commit Fraud - Hunger Games

"As flies to wanton boys are we to the gods,
They kill us for their sport."

William Shakespeare, King Lear

I noted reports on this from account holders last year, who had their requests for wire transfers, which are the customary manner of moving large sums from bank to bank, denied and instead were issued checks at a much slower pace. The checks of course bounced when they were received and the firm declared bankruptcy.

I also reported at least one instance of a customer who did have a wire transfer that was 'reversed.' I have not subsequently heard about that.

The point here is that the Customer Commodity Coalition is concerned about the continuing statements being put forward, and parroted by the mainstream media, that MF Global was merely engaged in 'sloppy bookkeeping' and their failure to segregate customer money was inadvertent.

For example, here is a quote from yesterday's New York Times:
"While clients of MF Global say that it was unprecedented for the firm to abandon a longstanding business practice to wire money to customers who were closing accounts, the documents are not definite proof of wrongdoing. In recent weeks, federal authorities have come to suspect that MF Global’s actions amount to sloppy record-keeping, rather than criminal fraud."

As I said in November, there will be a concerted effort to sweep this one under the rug.

Check-kiting is a crime. And this deviation from standard procedures and legitimate customer requests shows a clear intent to place the customers at risk because of the firm's own liquidity circumstances. Their money was being sent to banks in London while they were being promised its rightful return.

It also indicates that the management of MF Global was keenly aware of the low levels of cash in their customer seg accounts. One can choose whom to pay among creditors, but they cannot do so fraudulently denying fair claims through fraudulent means in order to conceal the facts of their firm's true status.

I doubt justice will be done in this case because of who is involved. But I do hope to see the customer money returned, and the perpetrators made aware that such theft will not pass unremarked in the future. And there is some small hope that the regulators will be shamed into doing their jobs.

And at the very least, all retail customers should be aware of the fraudulent taint in the US financial system, and that leaving your money in their slimy hands may be hazardous to your wealth.    Perhaps you feel as though you can take your chances in the system, that this cannot happen to you.

May the odds be ever in your favor.

Evidence of fraud at MF Global
By Daniel P. Collins
April 2, 2012

The Commodity Customer Coalition delivered a memo to U.S. Attorney General Eric Holder as well as U.S. attorneys from New York and Chicago and members of Congress stating that there is clear evidence of intent to commit fraud by MF Global.

In the early days of the MF Global bankruptcy one of the red flags that something was incredibly wrong at the firm were reports from multiple customers that MF Global had told them that they would no longer wire transfer money to them and instead cut them checks.

This was disturbing to customers used to moving money by wire at a moment’s notice. Worse yet is that many of these checks—perhaps thanks to the delay—ended up bouncing. After last week’s hearing when it became clear that money was transferred out of customer segregated accounts the fact that MF Global purposely slowed down payment to customers is evidence of intent to commit fraud according to the CCC memo. “When you have abrupt changes in standard business practices that is a “badge of fraud,”” says CCC co-founder John Roe.

The memo includes account statements from Steven N. Kaplan a client of Roe’s firm BTR Trading. Kaplan had requested a wire transfer of customer funds but instead received a check, which was co-signed by Edith O’Brien and Christy Vavra, that later bounced.

The memo states, “The decision to stop sending wires to customers from the segregated accounts demonstrates that MF Global was concerned with preserving liquidity. This may have been done to bolster the prospects of selling the firm to Interactive Brokers or because they were concerned that the draining of this account would reveal that customer funds had already been commingled to stave off MF Global’ s bankruptcy.”

The CCC is concerned press reports citing unnamed sources claiming that no actual crimes have been committed in the MF Global bankruptcy would hurt customers’ chances of being made whole. The memo states, “we believe that sufficient evidence exists of intent to commit an actual fraud to support probable cause to arrest one or more employees of MF Global for several state and federal financial crimes.”

Read the rest here.