U.S. Sen. Chuck Grassley, R-Iowa, is leading an investigation into the bankruptcy of brokerage MF Global Holdings Ltd. and the role that its primary regulator, the Commodities Futures Trading Commission (CFTC), played leading up to its recent bankruptcy. MF Global collapsed as a result of holding more than $6 billion in European sovereign debt, which rating agencies recently downgraded to just above junk status. In addition, more than $600 million in client cash is reportedly missing from MF Global's books. MF Global is the largest financial institution bankruptcy since Lehman Brothers in 2008.
Of apparent concern to the Senate investigation is the decision by the CFTC Chief Gary Gensler to recuse himself from the CFTC investigation as a result of his longstanding relationship with MF Global's former CEO Jon Corzine. Gensler and Corzine were former colleagues at Goldman Sachs. The pair also collaborated in Washington during Corzine's stint as a U.S. senator and Gensler's role as a staffer to former Sen. Paul Sarbanes. Gensler has indicated that MF Global did not receive any special treatment from the CFTC as a result of his relationship with Corzine, and that his decision to recuse himself from the investigation was made to avoid any distractions from the CFTC's investigation.
In addition to the Senate and CFTC investigations, MF Global faces additional scrutiny from the SEC as well as the FBI, which is investigating MF Global for commingling client and company cash. MF Global is also the current target of shareholder litigation. ("Sen. Eyes MF Global Collapse After CFTC Chief Exits Probe," Law360.com, November 7, 2011).