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Federal commodities regulators settle hedge-fund supervision case with MF Global

Federal commodities regulators settle hedge-fund supervision case with MF Global

Futures and options broker MF Global Ltd. agreed Wednesday to pay more than $77 million (euro53.5 million) to settle federal charges that it failed to watch over a hedge fund charged with fraud more than two years ago.
The Commodity Futures Trading Commission settled the charges with MF Global, formerly known as Man Financial.
The government said the company did not adequately supervise accounts used by Philadelphia Alternative Asset Management Co., a hedge fund that regulators charged with fraud in summer 2005.
The CFTC, which pursued the case with the receiver in charge of the hedge fund's assets, said it settled the charges with both MF Global and a former account executive, Thomas Gilmartin, who also had an ownership stake in the hedge fund and failed to tell his employer.
The hedge fund, the CFTC said, lost about $133 million (euro92.4 million) in MF Global accounts, but hid large losses by restricting Internet access to accounts and backdating execution dates of some trades executed through MF Global.
Federal prosecutors in November indicted the hedge fund's president and founder, Paul Eustace, on two criminal counts of commodities fraud.
The government said Eustace defrauded clients of $200 million from 2001 through 2005. The government accused Eustace, of Ontario, Canada of creating false account statements, hiking management fees based on false profits and transferring clients' money to himself.
The CFTC's civil settlement with MF Global is separate from the federal criminal case.
Gregory Mocek, the CFTC's enforcement director, said in a statement said the case "should send notice to brokers, brokerage firms, and third-party administrators that our investigations do not stop on the doorsteps of your hedge fund clients."
As part of the settlement, $69 million (euro48 million) will go back to hedge fund investors, with the rest going to legal fees, expenses and fines, the CFTC said.
Hamilton, Bermuda-based MF Global said in October that settlement and litigation costs would be covered by insurance and "will not be material to the company's long-term performance." The receiver in charge of the hedge funds' assets announced the settlement agreement on Dec. 3.
Shares of MF Global rose 71 cents, or 2.3 percent, to close at $31.40.


Updated : 2021-03-08 07:36 GMT+08:00