Highly Leveraged Trading
On October 25, MF Global revealed that it was exposed to $6.3 billion in debt from European nations including Ireland, Spain, Portugal, Belgium, and Italy. Acknowledging this debt position, MF Global's chairman and CEO Jon Corzine stated that the company "remain[ed] confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012."
One week later, after attempting to sell its assets to another firm, MF Global filed for Chapter 11 bankruptcy protection. Subsequent news reports indicated that MF Global could no longer operate with the European debt on its books. According to a joint Press Release by the US Commodity Futures Trading Commission and the Securities and Exchange Commission:
"Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA)."
Underwriters of securities are obligated to perform due diligence on the issuer prior to underwriting the security. Girard Gibbs is investigating the due diligence performed by the underwriters of MF Global’s Notes, including what the underwriters knew about MF Global’s financial position and internal controls for managing risk.