MF Global leaves industry scarred Exactly six months after MF Global filed for bankruptcy, former customers of the failed futures brokerage are still waiting to find out how much of an estimated $1.6bn in missing funds will be returned to them. The lack of information about exactly what occurred at the collapsed futures brokerage has caused a sense of frustration across the industry. It has shattered confidence and kept many of the traders affected away from the markets, particularly among the roughly 36,000 former customers of MF Global who remain out of pocket, their funds frozen by the bankruptcy court. Most customers have received 72 per cent of the money from their accounts from James Giddens, the bankruptcy trustee. Mr Giddens said last week that his staff's research into what happened to the missing money "is substantially concluded." However, it is far from clear that it will all be recovered and returned to customers. US Congress has held multiple hearings on the issue, federal regulators are investigating and a grand jury has convened in Chicago. Yet there are increasing doubts that these probes will uncover evidence of intentional misuse of customer money. There was excitement last month when politicians in Washington released an email that appeared to be a "smoking gun" linking the shortfall in customer funds to Jon Corzine, the former US Senator and New Jersey governor who ran MF Global, and who denies any wrongdoing. The email, written by Edith O'Brien, MF Global's assistant treasurer, referred to a $200m transfer that may have included customer funds as having been "Per JC's direct instructions." However, when she was hauled before Congress, Ms O'Brien refused to testify. Mr Corzine's lawyers deny he authorised any illegal transfers. The email was, therefore, inconclusive. Many in the industry are now resigned to the idea that ultimately there will be no criminal charges. "There may be civil action, based on failure to supervise," says Gary DeWaal, general counsel at Newedge, the world's biggest futures broker. Mr Giddens said last week he favoured such action. But Mr DeWaal is sceptical. "That could lead to a fine, but it wouldn't really harm anyone except the creditors," he says. The lack of a more decisive conclusion worries many in the industry. "When you have a systemic breakdown of this magnitude, it's one of two choices: it was bad actors or a bad system," says a senior US futures executive. So if all the investigations prove that no one really acted improperly and there were no bad actors, all you're left with is the idea that there's a broken system. CME Group, the US's biggest futures exchange and the organisation responsible for overseeing MF Global, is keen to avoid that perception. Without saying it directly, CME has, some feel, gone as far as it dares towards accusing the failed futures brokerage of fraud. Two days after the bankruptcy, the exchange accused MF Global of moving customer funds "in a manner that may have been designed to avoid detection." Terry Duffy, CME executive chairman, subsequently claimed the bankrupt firm "falsified reports" by telling the exchange it had excess funds in customer segregation days before it collapsed. Proving that reports were deliberately rather than mistakenly false, however, is likely to be tricky. In his report about the final days at MF Global, Mr Giddens described a shambolic scene in which employees were overburdened by having to meet vast funding needs. "The company's computer systems and employees had trouble keeping up," Mr Giddens wrote. A number of transactions were recorded erroneously or not at all. That picture is echoed by a senior investment banker who was invited in to look over the firm's books in its dying hours as it tried desperately to sell itself. "It was a complete mess in there," he says. If you had seen how chaotic it was, you would understand that the money probably went missing because of sloppy record-keeping. If that is the final version of events, many customers will feel permanently wronged, says John Roe, leader of the Commodity Customer Coalition, a customer group, and an introducing broker at BT Trading in Chicago, a firm that had all $15m or so of its client funds at MF Global. Mr Roe says his members would be "beyond dejected" if there were no prosecution. "There should be a criminal consequence," he says. The system itself is at risk if there isn't. "Someone at MF Global made the decision to swipe customer money," Mr Roe adds. They need to pay a price for that. Otherwise, our members will feel the marketplace isn't what they thought it was. The MF Global saga has already led to plans to improve protection for futures customers. Brokers and clearing houses will have to hold more capital from their customer accounts. The guidelines on how futures brokerages can invest customer funds have been made stricter. The danger for the industry, however, is that without a criminal case, these rule changes will fail to restore customer confidence. "This was a massive theft," says Jeff Carter, a Chicago futures trader and blogger. The futures industry battles the equity industry for dollars. Brokers compete against each other. If I am a customer and have a choice between trading crude oil futures or a crude oil ETF, the equity broker has a huge leg up against the futures broker if no one from MF stands trial - specifically, top management. Mr Roe says not even fully refunding customers can guarantee customer confidence. "Whether or not we get our money back, there was misuse of customer funds and so the damage in some respects has already been done," he says. If nothing happens, this means people can misuse customer funds and have no criminal liability, that they can get away with it.