The bankruptcy of a New York-based brokerage firm and the subsequent disappearance of up to $1.6 billion in customer funds has affected some in the agriculture community, including a few in Saline County.
On Oct. 31, 2011, MF Global, a major commodities and futures brokerage firm filed for bankruptcy. As the drama unfolded, it was discovered an estimated $500,000 to $1.6 billion of customers' funds was missing.
Regulators, Congress and authorities are investigating MF Global's failure and the disappearance in customers' money.
Locally, Central Missouri Agri-Service which has grain facilities in Blackburn, Slater, Malta Bend, Miami and Marshall, had about 2/3 of their marketing accounts with MF Global. So far the company has recovered roughly 72 percent of the funds they had in the firm's segregated funds, according to John Fletcher, CMAS general manager.
"Right now the amount we have outstanding with them is about half of what CMAS earns in a year," he said, adding he still expects to get another 2/3 of the missing money back.
In fact, several others are betting on the firm recovering up to 90 percent of their funds.
"We're getting people calling us every day wanting to buy our claim against MF Global, and they are wanting to pay about 2/3 of what they still owe us," Fletcher said. "So there are a lot of people out there that are betting the recovery is going to be higher than that."
In the next 30 to 45 days, approximately $600 million is expected to be distributed to MF clients. That should bring CMAS and the other customers up to 80 percent of funds owed.
Fletcher is quick to point out, the loss to the company won't affect area farmers who do business with CMAS in any way.
However, approximately 20 to 30 farmers in the county may have also had brokerage accounts and segregated funds with MF Global. Since CMAS offers marketing opportunities through their company, that probably eliminates the need for a large number of Saline County farmers to have individual accounts with the firm, he said.
"I don't know if anybody in this county who hedges on the futures market in a big way," he said.
In December, Fletcher testified about the matter in Washington D.C. on behalf of the National Grain and Feed Association.
"The MF Global Holdings bankruptcy has been a shock to our industry and to our firm," Fletcher told the U.S. House of Representatives Committee on Agriculture. "We have believed for decades that risk to segregated customer funds held by members of the clearinghouse was virtually zero. Now we know that was not the case."
Fletcher, who said the whole thing, "makes me mad more than anything," stated "in 75 years of futures trading there has never been a loss on a segregated funds account."
He said before Oct. 31, it was believed segregated accounts were "sacred."
"That money is supposed to be in segregated accounts," Fletcher explained. "Those funds are not funds of the company, they are funds of their customers, being held by the company."
Despite several congressional hearings in Washington D.C., including the one which Fletcher testified, nobody at the top of the company seems to know anything about where the money went. MF Global filed the eighth-largest U.S. bankruptcy with debt of almost $40 billion after making $6.3 billion in bets on sovereign debt and getting margin calls.
Several other brokerage firms have failed in the past, but never before have individual accounts been affected.
"When Lehman Brothers failed in 2008, nobody who had a segregated account at Lehman Brothers lost money," Fletcher said. "There was never a threat that they would."
Although it won't affect customers, Fletcher said CMAS will now be trading with four brokers to alleviate a similar situation in the future.
"That's the way we are managing this risk going forward," he said. "We make sure all of those four clear through different clearing firms, so rather than having two-thirds of your risk in one spot, we've got a fourth of our risk in one spot."
Contact Marcia Gorrell at email@example.com
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