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Published September 04, 2012, 10:25 AM

Why no jail time?

Dean Tofteland sweeps grain off of the elevator scale at his farmstead south of Luverne, Minn., and says it reminds him of the MF Global Holdings Ltd. case.

By: Mikkel Pates, Agweek

LUVERNE, Minn. — Dean Tofteland sweeps grain off of the elevator scale at his farmstead south of Luverne, Minn., and says it reminds him of the MF Global Holdings Ltd. case.

“They haven’t really cleaned this mess up,” Tofteland says.

Tofteland is one of more than 20,000 out-of-luck clients in the MF Global bankruptcy, which international news services reported as the eighth largest bankruptcy in the nation’s history. With only a few weeks before the 2012 harvest, his farm is still owed nearly $43,000 from the 2011 crop — roughly 20 percent of the value of a $250,000 initial loss. MF Global illegally used customer funds to trade and meet margin calls in European sovereign bonds.

At age 50, Tofteland has been managing the farm for about 23 years, with the help of a brother. The Toftelands farm 2,500 acres and do some custom work in the area. “We’re a family farm — one combine, one planter,” he says.

For 15 years, Tofteland used MF Global or its predecessors as his commodities brokerage. The company initially was Man Financial and was merged into MF Global, a major commodities brokerage. The company was a primary dealer in U.S. Treasury securities, meaning it was in an elite club of 20 companies permitted to trade directly with the Federal Reserve System.

Jon Corzine, MF Global Holdings Ltd. CEO, lobbied to become a primary dealer, Tofteland says. The company with a 200-year history had special privileges and should have been held to higher standards, he adds.

Dissipating illusions

Tofteland remembers Oct. 28, 2011, the day his illusions were shattered.

“I’d heard rumblings that the firm was in trouble on a Friday. I called my (local) broker and asked what’s going on. She said, ‘Oh, don’t worry. Your funds are in a segregated account.’ Whatever would happen would be safe, it would be transferred to a new owner, a new FCM (futures commission merchant) so we’d be safe.”

The following Monday, MF Global was bankrupt and funds in the account were frozen.

“I was in liquidation-only on my hedges, so I was forced to liquidate those hedges, which left me unprotected going into a crop report,” Tofteland says. The story gets worse.

First, news broke that the company was going to be sold and it would file bankruptcy. Then there was news that customer money was taken. Funds involved started at $900 million, then ratcheted up to $1.2 billion, and finally the trustee later determined it was $1.6 billion.

“It was a pretty stressful time,” Tofteland says. “This money wasn’t an investment. It wasn’t a loan. It was collateral I held to guarantee what I’d do — sell my crop at a certain price. It was part of my bank note at the time.”

Tofteland called all of his U.S. House and Senate members, asking for explanations. “After 15 calls, Klobuchar’s office called back. I never did get a call back from the other one,” he says, referring to Sen. Al Franken, D-Minn.

Klobuchar invited him to testify before the Senate Agriculture Committee Dec. 13, 2011.

A new suit, a hearing

“I decided I would do it,” he says. Other “executive-types” in farmer-owned cooperatives were there, but no other farmers from this part of the country. Tofteland bought a new suit and traveled to Washington, D.C., at his own expense.

“My role was to explain the impact on the average guy,” he says. “There were people affected more than I, but I was trying to say that this impacted main street America.”

Within a week after the hearing, Tofteland got a partial payment from the bankruptcy trustee, James Giddens. There have been a few payments since then, but no promise when the next check is coming. He hopes he’ll get a final payment before the end of 2012.

“I’m optimistic we’ll get all or most of it back eventually,” he says.

But now it’s been dragging on, with some rumors that he will get full payment and some that there will be no further payments. “I don’t think it’s about the money anymore; it’s about broken oversight on these futures markets,” Tofteland says.

Broken oversight

Tofteland knows how it’s supposed to work. He studied ag business at the University of Minnesota. Before leaving school in 1988 to take over the farm, he worked as a tour guide at the Minneapolis Grain Exchange. He saw the market’s efficiency and taught others through tours.

“All of a sudden, there gets to be a catastrophe like this and it’s sad for me to see it going down the road this way,” Tofteland says.

He says he’s received many calls from farmers, encouraging him to continue to speak up on the topic. “A lot of farmers aren’t willing to talk. Some are busy. Some businesses don’t want people to know they were exposed in this way. It’s a confidence issue.”

He expected the federal authorities to get to the bottom of it and prosecute whoever committed the fraud.

“Eight months later, nobody’s been convicted, or indicted. It’s kind of discouraging that the Department of Justice, the Commodity Futures Trading Commission, the Federal Bureau of Investigation, they all belong in the chicken house when it comes to these financial guys. They’re afraid to prosecute. You walk in a chicken house and everyone scatters.”

Keeping up online

Tofteland keeps up on the case through a Commodity Customer Coalition website — a group of customers and traders who came together after the MF Global crisis. The site represents some 20,000 customers who have been burned in the deal.

“I’ve spoken with quite a few farmers in Minnesota who have had accounts with MF Global,” he says. “I talked to a company that makes feed. They were out quite a bit more money than I was. Everyone wants some prosecutions, some indictments or justice done, so someone is held accountable.”

Tofteland is cleaning out bins from 2011 crops and expects to be harvesting soybeans in the second or third week of September — maybe sooner, if it freezes. As for MF Global, Tofteland says the important upcoming date is election day, Nov. 6.

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