The trustee for failed commodities brokerage MF Global Inc plans to tell a Congressional committee on Tuesday he supports civil fines for executives when their commodities brokerages lose customer money, even without proof they knowingly broke rules.
James Giddens said MF's collapse was due in part to lack of supervision, according to a copy of his planned testimony to the U.S. Senate Committee on Banking, Housing & Urban Affairs, obtained by Reuters.
Giddens is the trustee tasked with recovering as much money as possible for former MF Global customers. The company collapsed in October after revealing exposure to risky European debt and with a huge shortfall in client accounts.
According to a February report from Giddens, the estimated $1.6 billion (992.4 million pounds) shortfall resulted from MF Global workers commingling customer funds with the firm's own cash, a violation of a rule segregating client money from corporate assets.
While investigators have not yet brought charges alleging criminal intent, civil fines do not require intent.
Where there is a shortfall in customer funds, Congress should consider making the officers and directors of the company accountable and personally and civilly liable for their certifications, Giddens' testimony says.
Giddens has said separately he may bring civil lawsuits against executives for breach of fiduciary duty and other alleged violations.
According to his testimony, the trustee will also say he supports a rule change that would require commodities brokers to hold an excess of customer funds in segregation in case of emergency.
Such a rule could help ensure that there is a sufficient cushion at all times, according to the testimony.
Giddens also supports setting up a protection fund for commodities customers, similar to the Securities Investor Protection Corp, an industry-funded insurance program to protect customers of failed securities firms.
It could be generally affordable as most commodities traders hold small accounts, Giddens' testimony says.
The liquidation of MF Global Inc. would have played out differently had there been even a modest protection fund for commodities customers, the testimony says.
Giddens and several regulators, including Commodity Futures Trading Commissioner Jill Sommers and CME Group Inc Executive Chairman Terrence Duffy, are testifying on Capitol Hill on Tuesday.
Louis Freeh, the trustee in charge of recovering money for creditors of MF Global's parent company, is also slated to testify.
Giddens plans to push support for an idea to require commodities brokers to segregate the funds of clients who trade on foreign exchanges, and a rule that would require commodities traders to meet certain suitability requirements, according to testimony.
(Editing by Paul Tait)