CFTC Inaction on MF Global Harms Farmers And Precious Metals Investors

March 29, 2012

Agriculture is the second largest industry in Michigan. March 14 is Ag Day at the Capitol here in Lansing. In theory, it is a day when politicians learn more about the importance of agriculture to the state and national economy, so that they can make wise public policy.

Agriculture is a commodity business as is the mining industry. Unfortunately, many farmers, as well as precious metals investors, have suffered great losses from last year’s bankruptcy of MF Global Holdings.

It seems to be well established that MF Global used about $1.2 billion of customer funds (possibly illegally) to cover losses the company suffered trading for its own account. The final reports are not in, and the full truth may never be revealed as to just where the funds disappeared.

Many farmers who were clients of MF Global used that firm to hedge their crop and livestock prices. By knowing what they would be paid when it was time to sell, farmers could feel safer in being assured of covering their costs of seed, feed, fertilizer, energy, and payroll rather than risking a downturn in the market when it was time to sell. In many instances, the amounts farmers deposited in their MF Global accounts were sufficient to cover initial costs next year if the current year results were poor.

In theory, the account balances of farmers and precious metals investors were insured against loss. MF Global was federally regulated by the US Commodity Futures Trading Commission (CFTC). It should not have mattered that Gary Gensler, the chairman of the CFTC, and Jon Corzine, the CEO of MF Global, worked directly with each other at Goldman Sachs when Corzine was CEO at that company.

The most recent assessments of the MF Global bankruptcy are that the customers who have suffered losses will get virtually nothing. It appears that the company might get off the hook with an insignificant fine. It also looks like neither Corzine nor any of the other top officials at MF Global will be prosecuted for their failure to comply with CFTC regulations and other laws.

In other words, the inaction of the CFTC to enforce its regulations against MF Global likely contributed to that company’s bankruptcy. Then, the further inaction of the CFTC after the bankruptcy harmed farmers, precious metals investors, and other customers of the company who theoretically were insured against company malfeasance. I’m not saying the previous close working relationship between CFTC chair Gensler and MF Global CEO Corzine contributed to these multiple failures to protect farmers, precious metals investors, and other customers of MF Global. But it can make one wonder who the CFTC really works for.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

Read our related stories:

• Did MF Global Use $80 Million in Customers' Gold & Silver COMEX Warehouse Receipts as Collateral for a $300 M Short Term Loan?
• MF Global Looted Customers’ Accounts Via Internal Bank Run