MF Global Stand Down Order Questioned For First Time

It was October, 2012 and the Futures Industry Association (FIA) conference was winding down at an eerie point in time.

It was near Halloween, an event that will always bring back clear memories of the MF Global criminal incident.  One year later I was questioning newly minted CFTC Commissioner Mark Wetjen about a troubling topic.

The issue questioned occurred on November 1 2011, one day after missing money made clear headlines, MF Global legal representative Ken Ziman had walked into a Manhattan courtroom and made the claim that “All funds were accounted for…”

Mr. Ziman, an attorney for Skadden Arps, had been hired by MF Global executives the previous week as they planned for the firm’s bankruptcy, a key point.  Mr. Ziman was in court in the Southern District of New York testifying on orders from his client, he said in a phone interview.  Those orders were to provide a report that obfuscated known facts, a point questioned by a University of Washington professor in the December issue of OFI.

It is unknown if Mr. Zinman delivered this testimony with a straight face, as it was documented that regulators and MF Global executives were aware  the previous day customer assets had disappeared from segregated funds under known suspicious circumstances.  It was later learned CFTC investigators are on record as being ready to mount a vigorous defense of the most sacrosanct of accounts in the regulated derivatives industry, yet a stand down order appeared to have been given.  How else can one explain the fact that all regulators were silent when material information was presented in court under false pretense?  There can be no dispute that funds were missing under suspicious circumstance and regulators are documented to have been aware, yet the MF Global legal representative was allowed to make a misleading claim that impacted control of MF Global after the bankruptcy – control of continued asset transfers and evidence.

November 1, 2011 an order was sent from regulators to their legal representatives attending the courthouse drama.  This was the first of at least three documented stand down orders to have occurred during the investigation, is the speculation.

It was this incident to which Commissioner Wetjen received tough questioning as several reporters watched. To read about the full account, refer to the November 2012 issue of  Opalesque Futures Intelligence (OFI).

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