Investors in managed futures, and managers themselves, have most likely been affected by the bankruptcy and mishandling of funds at MF Global.

In recent days we’ve discovered a number of CTAs who have shut down operations due to the fallout from the MF bankruptcy.

However, there is hope for 100% recovery.  Typhon Capital Management CEO James Koutoulas has founded the Commodity Customer Coalition (CCC) with the purpose of obtaining full recovery for all customers of MF Global.

Currently the coalition is comprised of over 7,000 customers of MF Global.  Mr. Koutoulas, who is an attorney, has filed on behalf off CCC an objection with the Bankruptcy Court to a lien in favor of MF Global, which allows it to use the company’s cash to continue operations, at least for the next five days.

The  CCC’s objection is scheduled for a hearing on November 30.  The fundamental question is:  who should get priority to MF Global’s assets?   JP Morgan, or MF Global’s customers?

Normally, in business bankruptcy, creditors (especially secured creditors) get priority on assets. But Koutoulas says that if MF Global commingled funds with their own accounts, as many believe to be the case, then MF Global’s customers would have “clawback” rights similar to those in the Madoff case.

There is about $1.2 billion in excess equity in the holding company for MF Global. CCC is fighting to get a spot on the creditor’s committee so that it can protect the interests of investors.

Additionally, Jon Corzine has an errors and omissions insurance policy worth $200 million.  If criminal conduct is found, then this would open up that policy for claims.

And, there’s another source of recovery funds:  The Chicago Mercantile Exchange (CME), which is MF Global’s regulator.   It is possible that they will put up $300 million of the $600 million needed to make investors whole.  This leaves only $300 million which could be extracted from MF Global’s assets via bankruptcy proceedings.

It is our opinion that there’s a shared responsibility for the loss.   The CME is paid a fee for each futures transaction.  That fee is supposed to be used for CME’s purpose, which is to regulate its members.  The directors and officers of MF Global bear the greater responsibility, however, for it was their company which at minimum made irresponsible business decisions, and quite possibly misappropriated investor’s monies for its own benefit.