A Billion Dollar Mistake or Executives on the Take?

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A Billion Dollar Mistake or Executives on the Take?

Have you heard about MF Global? If you’ve been following the top business news lately it would be hard to miss. It all started with a ratings downgrade which triggered a liquidity crisis and that then degraded into the firm’s bankruptcy on October 31, 2011. A Halloween fright for their employees, clients and shareholders for sure. Another huge company bites the dust, and why?

Well, the firm’s bankruptcy is only one part of the story. After four months, the media isn’t letting go because this firm ‘lost’ $1.2 billion of their client’s money. The bankruptcy trustee for MF Global has yet to determine where the money went and the consensus is that it will probably never be located. How will they respond to suits by MF Global customers? Was this an epic mistake, theft or perhaps a corporate Halloween trick? Who will pay? MF Global is bankrupt so its shareholders will suffer the brunt of the cost. The actions leading up to today will determine if it’s covered by their Professional Liability insurance…or not.

What does Professional Liability insurance cover?

Professional Liability insurance, also known as Errors and Omissions (E&O) insurance, covers a company and its employees for liability arising out of acts, errors, omissions, or breaches of trust in the rendering of or failure to render professional services. Negligence is conduct that a professional liability policy would cover. Professional Liability insurance however, does NOT cover crime.

Fraud is excluded from every professional liability policy because the intentional nature of fraud makes it against public policy to insure. Some professional liability policies also exclude willful violations of statutes or regulations.

What is the law that has MF Global under scrutiny?

Securities and commodities brokers are required by the regulations of the Commodity Futures Trading Commission to keep customer money safely separate from the firm’s operating account. Use of customer funds to meet a firm’s operating needs is strictly prohibited; this is a basic fiduciary duty.

The MF Global Predicament:

Did MF Global employees try and avoid bankruptcy by intentionally using funds in the customer account to meet margin calls or was the loss of funds a mere clerical error? MF Global’s Professional Liability insurers will need to determine whether the loss of customer funds was the result of negligence or fraud and/or an intentional violation of law.

In the days leading up to its bankruptcy filing, MF Global was audited by its regulator, CME Group Inc. If it is determined that MF Global misled CME Group during this audit, the professional liability insurers will likely invoke the fraud exclusion and/or a willful violation of regulations exclusion. In this situation, some, if not all of MF Global’s loss may be excluded from its Professional Liability policy, but for now there are still a lot of unanswered questions.

For more information, the Motley fool hosted an interesting chat answering readers questions about what happened at MF Global: “In addition to destroying the eighth largest futures broker in the country and putting thousands of jobs at risk, the bankruptcy also revealed a gaping, $1.2 billion hole in the customer segregated accounts at the brokerage. That’s cash that belongs to tens of thousands of farmers, fund managers, and independent traders all over the country.” (Click Here)

Most firms have policies and procedures in place to ensure that their basic duties to customers are not breached. The lesson from MF Global for firms and professionals is that adherence to such policies and procedures is always important, particularly in a crisis, and deviation could result in excluded coverage on a professional liability policy. We encourage all BizInsure customers to discuss any questionable activities with your insurer before you find yourself in an MF Global mess!

BizInsure Guest Blogger: Carolyn Polikoff

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Jugrid Ombisi
Jugrid Ombisi
16:26 15 Jun 21
Done in less than an hour!
William Opperman
William Opperman
00:30 02 Jun 21
Efficient, and great value. The agent was able to give us a quote and a new policy in a short period of time. Thank you
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Brenda Jones
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Arik Solberg
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Elba Perez
Elba Perez
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I need a help getting errors and omissions insurance along with general liability. Jose was very friendly informative and was very patient with me during the process. He found me some of the best rates for the coverage that I needed. Highly recommend
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I had numerous conversations with several business insurance agents over a month's time. I also had several conversations confirming the policy inclusion/exclusions and asked many questions. My BizInsure agent was professional, knowledgeable and most important—detail oriented. Even after having an initial conversation a month earlier he knew and *remembered* all my personal/professional insurance needs. When I asked for additional information on the third call he was able to provide me with details very quickly. He was also VERY patient. That is a big plus in my opinion. It illustrated a high level of respect for my needs. I also found when I called back and asked to talk with the initial agent, the person who answered the call was able to get in contact quickly and my agent responded and returned the call within 5-10 minutes. The transaction was smooth, and I think it's a good sign should I ever need to make a claim. I highly recommend BizInsure.
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Sandra Darjean-Murphy
Sandra Darjean-Murphy
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Jusephine Ghong
Jusephine Ghong
17:58 23 Mar 21
The rep was extremely helpful actually lowered my quote and made sure I was covered to fit my needs with my growing business! 5star!!
Franklin Behm
Franklin Behm
19:04 16 Mar 21
Excellent service and prices.
Cassiopée V Lapierre
Cassiopée V Lapierre
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S & S Professional care llc Home Health Agengy
S & S Professional care llc Home Health Agengy
04:15 24 Feb 21
Mr. Daniel Scott was very responsive to my professional needs.
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Stephanie Woodruff
17:38 18 Feb 21
Eugene deserves a raise! First time purchasing insurance and he made the process so simple for me. His patience and attention to detail left me feeling confident in my decision to choose BizInsure. Gracias Eugene!
Esined Perez
Esined Perez
23:32 17 Feb 21
DIVINE FIJIANS HOME CARE SERVICES
DIVINE FIJIANS HOME CARE SERVICES
22:49 05 Jan 21
The customer service provided by Jose was outstanding. He explained everything in a very clear/logical way and answered all of my questions. After providing all the information to obtain general liability insurance, Jose sent me the declaration page of the insurance for review. All of the information matched what I provided over the phone and there were no typos. The next day I called back to purchase the insurance which was easy and fast. Overall, my experience with BizInsure including the customer service by Jose exceeded my expectations.
Joe Wajdula
Joe Wajdula
03:29 12 Dec 20
Hiscox/BizInsure made getting Liability Insurance very easy and reasonable.I expected it to be a long and complicated process and it was a nice surprise that they made it so uncomplicated. Thank you. Lisa
Lisa Word
Lisa Word
21:51 24 Nov 20
Eugene was incredible. I called 4 other brokers before him who were impossible to get any help.
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rhonda hale
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Cincere Browdy
Cincere Browdy
15:16 29 Oct 20
Very quick to get in touch with you and good with follow up. Had some trouble retrieving my quote to log into my account initially but Daniel assisted me and the changes were made to get me into my account. Great value for the money.
Fran Sutton
Fran Sutton
16:34 20 Sep 20
Very happy to be insured with this company. Professional, Timely, very helpful. Thank you Juan, you made it so much easier for me to understand.
Aileen Day
Aileen Day
19:55 15 Sep 20
This company responded when I needed them to respond while facing a deadline. They are an excellent choice for business Insurance.
Michele Harris
Michele Harris
01:52 12 Sep 20
Jose Quintero took such great care of me and was very patient explained everything I did not understand and got me set up quickly. Fabulous customer service
Christina Rose
Christina Rose
02:41 27 Aug 20
I can't say enough good things about Daniel Santos kind and effective communication skills as an insurance agent. Daniel was so pleasant, friendly and efficient with helping me obtain insurance as a teacher. If I were to give Daniel a grade, he has earned an At . He made the process easy to understand, it was far easier than what I anticipated. Nancy S.
Nancy Sloan
Nancy Sloan
00:47 26 Aug 20
I was in need of professional liability insurance for my sole proprietorship. A friend referred me. Everythng was quick and simple and AFFORDABLE!
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hope jones
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If you need Private Home Care Provider insurance for your company, BizInsure, LLC can get it for you!
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Pamela Curry
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19:51 14 Jul 20
I was tryi9ng to find commercial liability insurance for my new comp-any and BizInsure was easy to use and very affordable which is great for me as a new business.
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Jimmy Smith
19:01 14 Jul 20
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James Lang
James Lang
18:19 02 Jul 20
Ken M
Ken M
23:21 28 Jun 20
Great service insurance prices are great for professionals looking to get insurance for businesses....
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Rhonda Gray
22:34 22 Jun 20
The provided very professional service and made the process easy.
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Paul Rising
21:51 04 Jun 20
Bradley Hoyle from the Biz Insure team was excellent to work with. Everything was quick and smooth. Great service, much appreciated!
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Kristene Smith
02:03 04 Jun 20
Anthony Spencer was great!! Very quick response time!! He was very Professional! I would suggest him because he helped me find a affordable rate and explained all the technicalities..
Fre Hall
Fre Hall
16:38 28 May 20
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Dawn Torres-Gale
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Nekeisha B.
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Jasmine Q
14:31 02 Dec 19
Trish is the most patient, professional and understanding insurance agent I’ve ever worked with. Trish has taken care of all my business insurance needs for the last couple years. I am really happy that I found an insurance agent that I know will take care of me & all of my concerns. I feel like a valued customer & I appreciate the great customer service that I get every time!!THANK YOU!
Dr. Youssef C. Atallah
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Great customer service. I've been very inpressed with my dedicated representative that had helped me navegate my insurence needs. Thanks so much!
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