In response to the collapse of MF Global Holdings Ltd., futures firms are going to be restricted by a federal agency in regards to how they treat their clients’ cash. MF Global was led by Jon Corzine, who was at the forefront of the collapse. Firms will be subject to rule changes instituted by Chairman Gary Gensler of the CFTC, the Commodity Futures Trading Commission.

The proposed limits by the agency include one major wish that internal repurchase agreements will be banned. These are also known as repos, where a single part of a futures firm swaps a customer’s assets for securities. An example of this could be municipal bonds or foreign bonds that are being held at another area of the futures firm.

“There’s an inherent conflict of interest between affiliates doing such transactions,” CFTC Chairman Gary Gensler said. “I think customer money really has to be protected for the customers.”

Rule 1.25 is the rule of the CFTC that is targeted by the proposed changes. The rule regulates any investments made by futures firms using a customer’s cash. Changes to rule 1.25 were proposed in 2010, with Gensler pushing for those changes, but there was a lack of support from the remaining four commissioners.

A renewed urgency occurred when hundreds of millions of dollars went missing from MF Global right before it filed for bankruptcy. The money that went missing belonged to the firm’s clients. Sources claim that since the MF Global collapse occurred, their stance on the proposed rule changes for 1.25 has changed.

Should the rule changes be approved, the futures merchants will have to invest customers’ cash through a third party such as a bank. Futures merchants are those who process trades based on clients’ behalf.

In the week leading up to the company’s bankruptcy filing, those close to the investigation claim that MF Global took customer funds from the futures accounts mysteriously to shift them to their broker accounts. In the company’s final days, all of the money went missing, which was anywhere from $600 million to $1.2 billion.

Corzine has been subpoenaed to testify at the December 8 hearing by the United States House Agricultural Committee. The chairman of the committee, Frank Lucas, said the following about the investigation, “it is the committee’s responsibility to shed light on the facts and circumstances surrounding the bankruptcy and efforts to find missing customer funds.”

MF Global hit bankruptcy because of a $6.3 billion bet on government bonds from Europe that plunged in value as the European debt crisis increased. A financial tool known as the repo-to-maturity tool was used to fund the trade. This occurs when a futures firm borrows money and then pledges securities as collateral for the trade.

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In 2009 the average class-action securities settlement was $39 million, up from $28 million in 2008, according to the Cornerstone study.

A majority of these suits included purported violations of widely agreed upon accounting practices.  Twenty six percent of the class-action securities-fraud plaintiffs were represented by San Diego firm, Coughlin Stoia Geller Rudman & Robbins LLP, during the last 2 years.  It was Coughlin who took on the UnitedHeath case.  UnitedHeath was accused of secretly giving backdated stock options to executives.

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Guest specializes in corporate and securities law including debt and equity finance, corporate governance, and domestic and cross-border mergers and acquisitions. He also advises early-stage companies in regard to entity selection, capital structure, “angel” and venture capital finance, secured loans, executive compensation, intellectual property protection and technology licensing.

Guest earned his LL.M in Taxation from Boston University School of Law. He earned his J.D. from Cornell Law School and his B.A., cum laude from Wesleyan University. Guest is a member of the Board of Directors for the Hereditary Disease Foundation.

Founded in 1844, McCarter & English is based in Newark, New Jersey and has approximately 400 lawyers. The firm has additional locations in Boston, Hartford, Stamford, New York City, Philadelphia and Wilmington.

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Co-Chair of BuckleySandler LLC Jeremiah S. Buckley said “Noel is a talented and respected banking lawyer who will broaden and expand BuckleySandler’s financial services industry practice in Washington, DC,” and “His experience in working with industry executives and boards on challenges and issues affecting their institutions will be invaluable to our clients.”

Andrew L. Sandler, litigation group leader, noted “With the growth of our firm’s business during the past year, we have a need for highly experienced financial services attorneys,”

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Kouzoukas was principal associate deputy secretary of the Department of Health and Human Services. He is joining Covington’s health care and food & drug practice groups in Washington DC.

Kornblau was SEC chief litigation counsel. He joins Covington as a partner in the white collar & securities enforcement and litigation practices in New York.

Covington & Burling LLP is an international law firm with offices in Beijing, Brussels, London, New York, San Francisco, Silicon Valley, San Diego, and Washington, DC. It consistently ranks among the top 20 on The American Lawyer’s prestigious “A-List.”

CORRECTION: This story originally characterized David Kornblau as a “Bush administration refugee.” In fact, Kornblau joined the SEC in 1995, during the Clinton years, and was never a political appointee. From 2005-2009, he was with Merrill Lynch, so his move to Covington has nothing to do with the change in administrations.

JDJournal regrets the error.

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The business litigation practice will be the 15th office for Phialdelphia’s Fox Rothschild.

Joe Pastore and Eric Osterberg, who handle securities, technology and intellectual property litigation, will serve as partners. Pastore will manage the office.

IN 2008 Fox Rothschild LLP was the ninth largest firm in Philadelphia, and the 103rd largest in the United States, according to the National Law Journal’s rankings.

Fox Rothschild now has 450 lawyers.

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If you know anything about what’s going on at Duvall & Stachenfeld, please contact us confidentially.

Founded in 1997, Duval & Stachenfeld LLP provides legal advisory services. The firm focuses on areas such as bankruptcy, litigation, real estate, restructuring, securities and construction.

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