A probe of a JPMorgan Chase & Co account that received almost US$1.8 billion in inflows of cash in the month before MF Global Holdings Ltd’s bankruptcy showed no evidence that brokerage customers’ money was being siphoned off, a trustee said.
Louis Freeh, who is handling the parent company’s bankruptcy, said all transactions between the MF Global Inc brokerage customer account and the JPMorgan account, held by the parent company’s finance affiliate, related to margin loans. The affiliate lent money to brokerage customers to cover margin requirements and was later repaid, he said in a report.
Freeh said he started the probe, which included “review of volumes of bank statements and an extensive population of cash- transaction activity during October 2011,” after US Bankruptcy Judge Martin Glenn in Manhattan asked if any cash in the account belonged to brokerage customers, as some customers had alleged.
His findings indicated that at the JPMorgan account, money flowed from the parent’s affiliate to the brokerage, and not the reverse.
After an investigation, “the trustee does not believe that any of the cash in the JPM account as of the petition date represents misdirected customer property,” Freeh said in the report filed on Friday in bankruptcy court in Manhattan.
Even the account activity between Oct. 26 and Oct. 28, when a shortfall began in MF Global’s segregated customer accounts, showed no misdirected customer cash moving to the account at JPMorgan, he said.
In those two days, US$322 million flowed into the finance unit’s account and US$773 million flowed out, of which US$697 million was sent to the brokerage, Freeh said.
MF Global Holdings, formerly run by ex-Goldman Sachs Group Inc co-chairman Jon Corzine, filed the eighth-largest US bankruptcy on Oct. 31, listing debt of almost US$40 billion.
MF Global is using money in the account, which had a balance of US$25.3 million on Oct. 28, while it is in bankruptcy. The account had about US$21 million as of Jan. 31, according to a monthly operating report filed on Friday.
Customers of the failed brokerage had said the money may have been part of the US$1.2 billion believed at the time to be missing from their segregated accounts.
The brokerage trustee, James Giddens, has since traced most of the missing money, which had been added to other sums he hasn’t immediately been able to recover. He currently estimates the gap between customer claims and funds available to pay them at US$1.6 billion.
Freeh is handling the parent company’s bankruptcy in a separate court proceeding.