One Year Later …

Remember MF Global?

A year ago, in a flurry of transfers, security sales, and overdrafts, the brokerage firm MF Global filed for bankruptcy. When the firm collapsed, they left a $1.6 billion hole—funds that were owed to customers, $360 million of which are still missing. While the bankruptcy trustee thinks he may be able to make customers whole, that money will have to come from other creditors. Over the past year, no organization has been sued, no cash has been clawed back, and no one has been held formally responsible. Former CEO Jon Corzine has requested that a civil suit against him by shareholders be dismissed.

A congressional oversight committee has been investigating the failure for the past year and has conducted three hearings, 50 interviews, and has reviewed hundreds of thousands of documents. But one factor that hasn’t come up for much public discussion is the role of the auditor, Pricewaterhouse Coopers.

PwC is one of the Big Four auditing firms. They work with Goldman Sachs, JP Morgan, and other large financial firms. They should have known that MF Global’s policies and procedures were sloppy and disorganized. PwC should have known that money would go missing when customer withdrawals created mayhem. PwC had been inside MF Global from the beginning: they were Man Financial Group’s auditor when the Canadian firm bought the brokerage business from fraud-ridden Refco in 2005. They were the financial counsel that helped Man spin off MF Global in 2007. And they knew all about internal controls: they helped set up Refco’s. That didn’t work out so well.

Financial firms fail, sometimes due to fraud, sometimes from bad timing. The internal auditor is supposed to find trouble spots and flag them for remedial action before they blow up. Except when they don’t.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T11:22:26+00:00 November 1st, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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