Roads lead back to J.P. Morgan
????But a list of contentious issues remains, and at the top is the missing money. While hundreds of millions of dollars have turned up in a custodial account at J.P. Morgan (JPM), none of those funds have been restored to MF Global clients, who should have been first in line to get them. Investors have been crying foul, and so they should. Customer accounts are supposed to be kept strictly segregated from a brokerage firm's money. According to the CME Group's (CME) Chicago Mercantile Exchange, the world's dominant futures market and the designated "self-regulatory organization" of MF Global, those rules were violated.
????Although MF Global owes J.P. Morgan $1.2 billion as an unsecured creditor, clients of MF Global whose funds are still missing should not have to beg J.P. Morgan for relief. "We're simply asserting that if MF Global commingled funds from customer accounts, or cannot properly account for them, J.P. Morgan can't lay claim to those funds as if they were their own," Koutoulas has asserted. Already, trading volumes have taken a hit because investors have been deprived of their own capital, socked with margin calls, or found live trades in limbo. According to the bankruptcy trustee, more than 3 million positions with a notional value of $100 billion were left in the lurch.
????The trustee, James Giddens of Hughes Hubbard & Reed LLC, tells Fortune he has begun an investigation into the MF Global funds held at J.P. Morgan, but he has not asked the bank to return the money, pending the outcome. A spokeswoman for J.P. Morgan confirmed the bank is holding the money and said it has no intention of releasing the funds while the investigation is ongoing.
????"There is something that's a little wrong with this, isn't there? It seems the trustee should be looking out for us, demanding this money back and going to the judge," says an independent trader in New York still awaiting $1 million of his missing funds. "Why is J.P. Morgan holding it? I am not a creditor. This is my money." Giddens himself has a long history of doing work for J.P. Morgan, which not surprisingly voted in favor of appointing his law firm to the MF Global case (and the vote was not unanimous).
