On a pending segregation protection…

“We still have our response brief out requesting segregation protection follow customer funds wherever they were sent. The judge is probably holding onto that waiting for the criminal investigation to continue. So, there hasn’t been a ruling yet — we’ll try to work with and advise the court on that.

“We’re also working with a few people to help get something moving regarding a criminal investigation. Our main challenge, once the trustee goes after the counterparties sitting with 4d funds, will be preventing them from hiding behind the 2005 amendment to the Bankruptcy Code for ‘safe harbor.’

Note: 4d segregated accounts are for customer funds used to trade futures and options. They are kept separate from the firm’s.

“That relates to settling security transactions and says ‘hey, unless there is actual fraud that clause isn’t intended to help the recipients of stolen property to keep it.’ That’s what they’ll try and say — ‘we’ve got safe harbor according to this provision.’

“However, if there is evidence of actual fraud they can’t invoke that. So, it’s very important there be a criminal element to this. And, very clearly, there is.”

On new evidence regarding comingling of MF Global customer funds…

“Evidence is now floating around that people knew some things — prior to segregation and before they admitted to the CFTC they were under segregation. And if they knew (funds) were short and they were still sending money to counterparties, that’s general criminal intent.

“Of course, that doesn’t even touch on a scenario where you say ‘we’ll ignore all the missing money.’ If a CFO that is to be bankrupt in six days is telling ratings agencies the company has never been in a stronger financial position, you can’t tell me that isn’t securities fraud.

“There are all sorts of evidence of wrongdoing. We want to pressure some of the agencies involved in the investigations to make sure it is actually going on.

“We keep reading the anonymously sourced articles that appear from time to time — ‘there’s no criminal wrongdoing and (investigators) can’t really find anything.’ That sounds to me like someone is floating a story to see if there is any blowback.

“So, we’re making sure there is blowback.”

On briefing congressional staffers…

“I’m headed to Washington, D.C., on April 3 to sit on a panel for congressional staffers of the Senate Agriculture Committee. … That’s to just update them on what should be, in our opinion, the policy response to this.

“We’re working on a couple of proposals that are simple. We keep hearing from people who have a vested interest in nothing being done: ‘hey you can’t stop someone from robbing the bank.’ Of course, that’s true but when the bank folds it doesn’t keep everyone’s money for a year. There are ways to prevent that.

“One of the things we’ll propose is there be no BD/FCMs (broker-dealer /futures commission merchant) — you can’t have both securities and futures broker in the same entity, they must be in separate corporate structures. That way, when the securities side goes down, (the fallout) goes through SIPA (Securities Investor Protection Act); when the futures entity goes down, it goes to Chapter 7. That protects everyone’s customers.

“Or, if you have a BD/FCM you must hold the money in a SIPA account. That way, commodities customers do get SIPA protections.”

On streamlining the Bankruptcy Code…

“We’ll also recommend a provision, an amendment, in the Bankruptcy Code to amend safe harbor. That will keep it from applying in instances of actual fraud but in fraudulent conveyance or constructive trust. If something like this happens again the banks won’t be able to use safe harbor to keep stolen property.

“We’re also going to look at other amendments in the Bankruptcy Code that streamline the process. There ought to be orderly liquidation procedures.

“In terms of insurance, we’ve looked at all the proposals. Most are like SIPA — they’ll be expensive and raise the cost of doing business and not very effective.

“However, there can be a self-insurance mechanism that could work outside of Congress. We’ll tell Congress ‘look, if you take a group like the NFA (National Futures Association) and double the fee from 2 to 4 cents — and put that extra in a fund and let it grow — if (an MF Global situation) happens again the fund will offer liquidity for any shortfall. Then, it can be the entity that goes to bankruptcy and negotiates claims and the like.’

“So, you’d have a single entity that would be arguing on behalf of customers, representing customers’ interests, and actually going into bankruptcies and fighting on behalf of customers. They’d have the money to withstand the legal expenses of bankruptcies and use that reserve that would build up to plug shortfalls or facilitate loans to keep people trading.”