Pork producers were left high and dry when MF Global, an international futures trading firm, declared bankruptcy, and they want regulators to be sure it doesn’t happen again, representatives of the National Pork Producers Council told Congress Monday.
At least 20 percent of U.S. pork producers had funds with MF Global, some of the 38,000 MF Global customers that had money with the company when it declared bankruptcy on Oct. 31 – the eighth largest bankruptcy in U.S. history
On Oct. 30, both Chicago futures exchanges were notified that MF Global had a material shortfall of nearly $1 billion.
The CME reported that early the next day, MF Global admitted transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global’s U.K. subsidiary to cover or mask liquidity shortfalls at the company, according to a summary on wikipedia, the online encyclopedia.
In written testimony submitted for the record to the Senate and House agriculture committees and the House Financial Services Committee, NPPC said most producers were unaware of their connection to MF Global and were stunned that their futures accounts were frozen and funds were “missing.”
Most, if not all, of the pork producers who had funds with MF Global did not deposit their funds directly there. They opened futures trading accounts with an “introducing” broker, which put the funds into MF Global, the NPPC said.
As much as $1.2 billion of customer funds may have been comingled with MF Global money and used to buy risky European debt, the NPPC said.
The pork producers asked Congress if they will be “made whole” by the return of their money. They also asked for priority in bankruptcy proceedings, should something similar happen again.
And, the NPPC asked for:
• Stiffer criminal and/or civil penalties for misuse of customer accounts.
• Requirements for brokers to get permission before using customers’ funds for purposes other than customer transactions.
• Customers insurance similar to that provided to securities investors through the Securities Investors Protection Corporation.
• Financial tests and additional audits of brokers and dealers by governmental and non-governmental entities.
Pork producers depend on risk-management tools such as futures contracts to deal with volatility in feed grain and hog prices, the NPPC said.