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Freeh Report on MFGlobal

Freeh Report on MFGlobal

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Published by zerohedge
Freeh Report on MFGlobal
Freeh Report on MFGlobal

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Published by: zerohedge on Apr 04, 2013
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07/10/2013

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 MORRISON & FOERSTER LLP1290 Avenue of the Americas New York, New York 10104Telephone: (212) 468-8000Facsimile: (212) 468-7900Brett H. Miller 2000 Pennsylvania Avenue, N.W.Washington, D.C. 20006Telephone: (202) 887-1500Facsimile: (202) 887-0763Adam S. Hoffinger Daniel A. Nathan
 Attorneys for the Chapter 11 Trustee
UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF NEW YORK 
- - - - - - - - - - - - - - - - - - - - - - - -In reMF GLOBAL HOLDINGS LTD.,
et al 
.,Debtors.::::Chapter 11Case No. 11-15059 (MG)(Jointly Administered)- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
REPORT OF INVESTIGATION OF LOUIS J. FREEH,CHAPTER 11 TRUSTEE OF MF GLOBAL HOLDINGS LTD.,
et al
.,
11-15059-mg Doc 1279 Filed 04/04/13 Entered 04/04/13 01:02:10 Main DocumentPg 1 of 124
 
TABLE OF CONTENTS
 
Page
 -i-I. EXECUTIVE SUMMARY ............................................................................................... 3II. FACTUAL BACKGROUND ............................................................................................ 7A. Transformation into MF Global ............................................................................. 7B. The Dooley Incident and MF Global’s Risk Infrastructure ................................... 81. Immediate Impact of the Dooley Incident ................................................. 92. Creation of the CRO Position .................................................................. 103. Development of Written Policies Following the Dooley Incident........... 10a. Escalation Policy .......................................................................... 10 b. Risk Policy ................................................................................... 114. Implementation Failures .......................................................................... 125. Promontory’s Approval of Written Policies ............................................ 13C. Corzine Joins MF Global as Chairman and CEO ................................................ 141. Corzine’s Plan to Transform the Company ............................................. 162. The Launch of Proprietary Trading ......................................................... 173. The Hiring of Boston Consulting Group ................................................. 184. Expansion of the Company’s Trading Capabilities andEstablishment of the Principal Strategies Group ..................................... 215. Corzine’s Trading Activities .................................................................... 23D. RTM Structure and Accounting ........................................................................... 241. RTM Structure ......................................................................................... 242. Role of a Clearinghouse ........................................................................... 253. RTM Accounting ..................................................................................... 25E. MF Global’s Investment in European Sovereign Debt ........................................ 261. MF Global’s Execution of Euro RTMs ................................................... 262. Initial and Variation Margin .................................................................... 293. Revenues Generated by the Euro RTMs .................................................. 304. Corzine’s Execution of Euro RTMs ........................................................ 325. Initial Increases to European Sovereign Risk Limits ............................... 326. Corzine Asks the Board to Increase the Risk Limit to $4.5 Billion ........ 347. Corzine’s Growing Bet ............................................................................ 34
11-15059-mg Doc 1279 Filed 04/04/13 Entered 04/04/13 01:02:10 Main DocumentPg 2 of 124
 
TABLE OF CONTENTS
(continued)
Page
 -ii-a. Corzine Seeks Risk Limit Increase to $4.75 Billion .................... 36 b. The Board Temporarily Halts European Sovereign DebtTrading Between December 2010 and January 2011 .................. 37c. Corzine Hires Stockman to Replace Roseman ............................ 39d. Corzine Seeks Risk Limit Increase to $5 Billion ......................... 40e. Corzine Seeks Additional Risk Limit Increases in March2011.............................................................................................. 43f. Stockman Warns of Possible Increased MarginRequirements ............................................................................... 44g. Corzine Seeks Additional Risk Limit Increases in June2011.............................................................................................. 46h. Stockman Advocates Hedging and a Halt to Trading .................. 48i. The Board Halts Trading ............................................................. 51F. The “Break the Glass” Analysis .......................................................................... 53G. FINRA Capital Charge ........................................................................................ 551. MF Global Faces Increased Regulatory Scrutiny as a Result of theEuro RTM Portfolio ................................................................................. 552. Debate with FINRA Regarding Capital Charge ...................................... 563. Consequences of Re-Filing the July 2011 FOCUS Report ...................... 584. FSA’s Reaction to the Capital Charge ..................................................... 595. The Press and the Credit Rating Agencies React to FINRA’sCapital Charge Decision .......................................................................... 60H. The Final Week of MF Global’s Operations ....................................................... 601. Monday, October 24, 2011 ...................................................................... 602. Tuesday, October 25, 2011 ...................................................................... 613. Wednesday, October 26, 2011 ................................................................. 634. Thursday, October 27, 2011..................................................................... 655. Friday, October 28, 2011 ......................................................................... 686. Saturday, October 29, 2011 ..................................................................... 697. Sunday, October 30, 2011 ........................................................................ 708. Monday, October 31, 2011 ...................................................................... 71I. Debtors’ Funds at the Commencement of the Bankruptcy Cases ........................ 71
11-15059-mg Doc 1279 Filed 04/04/13 Entered 04/04/13 01:02:10 Main DocumentPg 3 of 124

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