Forbes Follows Up on EPJ Report on Suspicious MF Global Filing Practices

Following up on the report of EPJ's Bob English on suspicious filing practices surrounding MF Global documents, Francine McKenna comments at Forbes:

Instead of looking out for MF Global investors – and customers who are still waiting for their money – it looks like regulators and the bankruptcy trustees are busy suppressing information. Instead of full transparency, regulators and the trustees are holding onto crucial details that might tell us all who was asleep at the wheel when the broker/dealer and futures commission merchant (FCM) headed over the cliff.

Bob English, an independent trader and contributing editor to the blog, Economic Policy Journal, published a post this morning that raises serious questions about the Securities and Exchange Commission’s program of regulation for broker/dealers and, in particular, the agency’s role in keeping the truth from the public about what went wrong at MF Global.

McKenna continues:

PwC’s report to the SEC of internal control discrepancies for 2010, and there is one according to the filing index, is private. None of the auditor’s reports specific to the broker/dealer and FCM are available to the public on Edgar for 2011.

Is this just sloppy scanning? It’s no coincidence to me that auditor PricewaterhouseCoopers may also be playing a role in keeping uncomfortable or incriminating information from the public about its audit clients which include MF Global as well as Bank of America, JP Morgan, and Barclays. (See latest record fine against PwC for looking the other way at customer funds commingling at JP Morgan. They are also under investigation for similar sins at Barclays.) The largest audit firms routinely request confidential treatment of their reports and contract details such as engagement partners, whether as a vendor to the government or as a defendant in a contentious lawsuit.

There’s also a very strong interest on all sides of the MF Global mess in not leading anyone to third-parties such as bankers like JP Morgan, lawyers, and PwC, the auditors, too soon. Is there something in PwC’s secret audit reports and internal controls discrepancy reports for the broker/dealer for 2010 and perhaps 2011, that someone, anyone should have paid attention to earlier?

Here we are, more than two months after the forced liquidation of the MF Global broker dealer - it’s important to note this was no voluntary bankruptcy filing but a liquidation forced on MF Global by the Securities Investor Protection Corp – and the missing $1.2 billion of customer funds has not yet shown up...

When the trustees, the regulators, and the FBI finally stop looking under sofa cushions for the missing customer funds, they’ll have to start preparing lawsuits against third-parties to meet the huge shortfall including directors, JP Morgan, Jeffries, who underwrote the bond issue in August, and auditor PwC.

The Department of Justice will be forced to file criminal charges against someone.

What evidence will they base these lawsuits and criminal complaints on? Typically, a bankruptcy trustee hires a bankruptcy examiner to develop the theories and uncover the evidence used to hold executives, directors, bankers, underwriters, auditors and attorneys responsible for the failure of the firm and any fraud.

That hasn’t happened here. Why not?