UPDATE: CME Group Discloses Subpoenas In MF Global Probes
February 28 2012 - 11:41AM
Dow Jones News
CME Group Inc. (CME) disclosed it received two subpoenas last
November to produce "information and witnesses" in probes related
to the collapse of brokerage MF Global Holdings (MFGLQ).
A grand jury in the Northern District of Illinois and the
Commodity Futures Trading Commission both issued subpoenas to
Chicago-based CME, days after MF Global's Oct. 31 bankruptcy
filing.
CME disclosed the moves in a regulatory filing Tuesday, and
separately received a request for documents from the Securities
Investor Protection Corp., which took over liquidation of MF
Global's estate following the futures firm's downfall.
"We're cooperating with investigating authorities, and there are
lawsuits concerning MF Global that name CME Group," said a
spokeswoman for the Chicago exchange operator. She said CME's
participation in the probes had been previously disclosed.
A spokesman for the Illinois District Court declined
comment.
CME's role as auditor of MF Global's books and supervisor of its
conduct has come under scrutiny following the firm's collapse. An
estimated $1.6 billion in customer assets remains out of reach for
the trustee unwinding MF Global's brokerage business, and exchange
executives maintain that staff at the brokerage illegally tapped
into client funds to shore up its capital position during its final
days.
Auditors from CME combed MF Global's books just days before the
firm went bankrupt but found nothing amiss until MF Global notified
the exchange and federal regulators of a $900 million shortfall in
client funds Oct. 30. The gap prevented the sale of MF Global to a
rival and sealed its fall into bankruptcy the next day.
On Nov. 1 CME received a subpoena from the Northern District of
Illinois, which formed a grand jury to assess the matter. On Nov.
3, the Commodity Futures Trading Commission also subpoenaed
CME.
The SIPC trustee's request for documents came on Jan. 31,
according to CME's spokeswoman.
CME has sought to mitigate fallout from the MF Global debacle,
coordinating a massive migration of its customers to other
brokerage firms, putting up a financial guarantee aimed to help
return some money to MF's former clients and participating in
investigators' probes of the episode. So far former customers have
gotten back about 72 cents on every dollar they had with MF
Global.
Regulators are also looking into how CME handled the audit
process for MF Global as part of their inquiry into the collapse,
and some in Washington have called for the exchange group's
regulatory functions to be hived off into a separate entity to
eliminate any potential conflicts of interest. CME has not been
accused of any wrongdoing in the matter.
Separately CME acknowledged a raft of lawsuits that former
customers have aimed at the exchange company, as well as MF Global
executives and its former bank J.P. Morgan Chase & Co. (JPM).
Three suits have been filed this year in New York federal court
alongside an earlier suit lodged in Michigan state court, seeking
damages for "aiding and abetting breach of fiduciary duty,"
according to CME's Tuesday filing.
The lawsuits are expected to be consolidated in federal court in
New York, according to CME's filing, and the exchange company
believes it has "strong legal and factual defenses to the
claims."
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
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