Andrew Abraham

andy-0101 My name in Andrew Abraham. I have been investing in commodities and managed futures since 1994. I adhere to the philosophy of trend following. Trend following stresses a disciplined approach to commodity/ futures trading. Successful trend following and commodity futures investing requires patience, discipline and actively managing the risk. What sets me apart from other traders is that I am not only concerned about the return on investment but how much risk I will have to tolerate to achieve my goals.

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Rep. Grimm Asks CFTC Gensler Why the bankruptcy of MF Global was treated as a Chapter 11 Bankruptcy Under the Securities Investor Protection Act?

Rep. Grimm Questions Regulators on MF Global Bankruptcy Decision Putting Victims at Disadvantage Against Big Banks
Feb 2, 2012 Issues: Financial Services
WASHINGTON, DC – Today, Rep. Michael G. Grimm (R-NY) sent a letter to CFTC Chair Gary Gensler questioning a bankruptcy decision made in a meeting that has disadvantaged MF Global customers in recovering missing segregated funds, by giving equal standing to big banks.

“This decision raises serious red flags and a lot of questions regarding who was in this meeting, who pulled the trigger, and who’s really going to benefit,” said Grimm. “The questions also include why the CFTC did not freeze all assets and stop all trading in the holding company to prevent it from operating under Chapter 11, which resulted in the vast majority of assets being traded overseas, and thus making them exponentially more difficult to recover. The CFTC and SEC have a lot of explaining to do, and I’m calling on them for answers.”

The decision was made in an October 31, 2011 meeting attended by the SEC, CFTC, and allegedly members of the financial industry, including representatives from big banks. The decision was made for MF Global to file under SIPA (Securities Exchange Investment Act), instead of filing under Chapter 7 of the Bankruptcy Code and the Commodity Exchange Act.

“Given that the overwhelming majority of MF Global’s business is commodities accounts, the bankruptcy should not have been filed under SIPA,” said Grimm. “It should have been filed under the Commodity Exchange Act and Chapter 7, which would give the victims of MF Global priority standing to recover stolen funds and make their accounts whole.”

By filing under SIPA, creditors who lent money to MF Global and customers with missing money are put under the same legal framework. However, as commodities customers, they are not covered by SIPA insurance, generally known as SIPC. Had they filed under the Commodities Exchange Act and Chapter 7, the customers would be in a position of priority standing to recover their stolen funds.

Rep. Grimm also raised similar questions in today’s House Financial Services Oversight and Investigation Subcommittee hearing on MF Global.

###

The text of the letter is attached and below:

February 2, 2012

The Honorable Gary Gensler
Chairman
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

Dear Chairman Gensler,

I am writing today in regard to the continuing investigation into the collapse of MF Global. While I understand that since November 5, 2011 you have recused yourself from this investigation, the main questions contained in this letter are related to the events of October 31, 2011, prior to your recusal.

There are many questions surrounding the events that lead to the bankruptcy of MF Global being treated as a Chapter 11 bankruptcy under the Securities Investor Protection Act (SIPA) rather than as a Chapter 7 bankruptcy under the Commodity Exchange Act. It is my understanding that approximately 99 percent of MF Global customer accounts were commodities and futures accounts.

Therefore I find it difficult to comprehend why this bankruptcy was structured as it was. It is also my understanding that if this bankruptcy was structured as a Chapter 7 bankruptcy that commodities and futures holders of segregated accounts would have received full restitution for their missing funds since the entire firm and its holdings would have been liquidated and the customers of the Futures Commission Merchant would have been in priority position over all other creditors.

In a House Financial Services Oversight and Investigations Sub-Committee hearing held today, Michael Stockman, the Global Chief Risk Officer of MF Global Holdings testified that he was aware of a meeting (other reports also indicate there were conference calls) that took place on October 31, 2011 where the course of the MF Global bankruptcy was determined. Mr. Stockman testified that he was not aware of what occurred in the meeting or who was present since he was not in attendance.

Based on his acknowledgement of this meetings occurrence, I have several questions:

1. What Commissioners and/or employees of the Commodity Futures Trading Commission (CFTC) were involved directly or indirectly with the meetings and conference calls on October 31, 2011?
2. Was CFTC Commissioner Jill Sommers present at this meeting? If so, does her continued role leading the investigation pose a serious conflict of interest?
3. It is my understanding that Robert Cook, Director of Trading Markets for the Securities and Exchange Commission (SEC), may have been present at this meeting. Are you or your staff aware of what Commissioners or employees of the SEC were involved in this meeting?
4. In addition, it has been relayed to me that representatives of private sector financial institutions were involved in these discussions as well. If that is the case, which firms were involved and what are the names of the employees who participated?
5. To your knowledge which, if any, Directors, Executives, employees and/or outside counsel to MF Global were involved in these discussions?
6. At this meeting, or at any other meeting, was there a discussion of whether the CFTC should freeze all assets and halt all trading in MF Global Holdings to prevent the firm from operating under Chapter 11? It is my understanding that these continued operations allowed a significant amount of the firm’s assets to be transferred overseas, thus making the task of recovering them exponentially more difficult.

I believe we all agree that this is a very serious matter. If this is not resolved quickly, with the clients of MF Global who had funds stolen from their segregated accounts made whole, nothing less than the future viability of the futures market in the United States is at stake. As you stated before a hearing of the Senate Homeland Security and Governmental Affairs Committee, Permanent Subcommittee on Investigations on November 3, 2011 “Segregation must be maintained at all times. Simply put, that’s every moment of every day, down to the nanosecond.” Clearly account segregation is the bedrock of the futures market. A lack of action to protect these victims could lead to various market participants losing faith in this system. Clients of other US firms would begin looking to conduct business overseas or make direct producer to supplier transactions, reducing these companies’ ability to mitigate risk and keep consumer prices stable for a wide variety of goods. I thank you in advance for your cooperation in this matter.

Sincerely,

________________________________
Michael G. Grimm
Member of Congress


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