Baucus Presses Regulators to Find Answers for Montana Farmers, Ranchers Hurt by MF Global Malpractice

Press Release

Montana's senior U.S. Senator Max Baucus today called on regulators to find the quickest solution to fully repay Montana farmers and ranchers hurt by the irresponsible, and potentially illegal, practices of international investment firm MF Global. Baucus questioned representatives from the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) at a Senate Agriculture Committee hearing this morning after hearing from several Montana farmers and ranchers whose customer accounts are now frozen amid the MF Global bankruptcy scandal where upwards of $1.2 billion in customer funds are missing.

Most recently, members of Baucus' staff have heard from several attendees at this week's Montana Grain Growers Association Convention in Great Falls. Baucus highlighted the story of Fairfield farmer Marty Klinker at today's hearing.

"I want you to understand this hearing isn't just an academic exercise," Baucus said to the regulators. "We're talking about real Montana farmers and ranchers who engaged in good, legitimate business practices, and they have been hurt by unchecked greed. Marty Klinker, for example, a farmer out of Fairfield, Montana, may be out thousands of dollars because he trusted the system that was supposed to protect him. So I want to know first when and how are we going to get these folks back their money, and second, what do you say to Marty and farmers like him all across the county? Folks like you and I are just the hired hands, we are the employees. The employers are the people we work for in this country, and they trust us to make sure there is an orderly procedure here. And they need you to make sure their accounts are sufficiently protected and nobody is taking advantage of them."

It's common practice for farmers and ranchers across the country, like Klinker, to use futures contracts to avoid market volatility by locking in a price for their crops or livestock in advance. Klinker held both liquid assets and open trades at MF Global, which were frozen when the firm filed for bankruptcy. So far Marty has received about 12 percent of the open trades and about 60 percent of the liquid assets in his accounts.

The Agriculture Committee will follow up with another hearing on MF Global later this month.

Additional Background:

On October 31, 2011, MF Global - a large brokerage firm registered with the Securities and Exchange Commission (SEC) as a broker-dealer and with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM) - filed for bankruptcy. Farmers and ranchers across the country use futures contracts, with firms such as MF Global, to limit their risk in the commodities market. Under normal bankruptcy proceedings, these types of contracts are supposed to be protected by strict segregation rules: customer funds entrusted to futures commission merchants - in this case MF Global - are required to be kept in separate accounts and the futures commission merchant is not allowed to use them for its own purposes.

In the MF Global case, however, upwards of $1.2 billion in customer funds are missing. The CFTC, SEC, Justice Department, and the bankruptcy trustee are investigating the shortfall and trying to locate the missing funds. Violation of segregation rules, if it occurred, is subject to civil and criminal penalties.

On November 17, 2011, the bankruptcy court approved a distribution of $520 million, or 60 percent of the $869 million in cash accounts that has been frozen since the bankruptcy. But this leaves some Montana farmer and ranchers still currently out thousands of dollars that rightfully belongs to them.

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