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MF Global is investigated for possible misuse of customer funds

Government regulators are trying to determine whether trading firm MF Global, which has filed for bankruptcy, placed big bets for its own benefit with customer money.

November 02, 2011|By Nathaniel Popper, Los Angeles Times

Reporting from New York — Government authorities are investigating whether MF Global Holdings Ltd., the trading firm that has filed for bankruptcy and is run by former U.S. Sen. and New Jersey Gov. Jon Corzine, misused customer funds.

Regulators said that the firm had not properly kept customer funds separated from the firm's own funds, raising concerns that the company may have placed big bets for its own benefit with customer money.

The FBI is expected to investigate whether the firm's actions violated criminal laws, two people familiar with the situation told the Associated Press. Both spoke on condition of anonymity because they weren't authorized to discuss the matter publicly.

The Chicago Mercantile Exchange, where MF Global is a member, said Tuesday that it was investigating whether the company was in compliance with federal regulations about "customer segregation requirements."

That announcement came soon after the Commodity Futures Trading Commission, the regulator for certain MF Global operations, said that there were "possible deficiencies" in the way the company dealt with customer funds. The agency said that MF Global had reported the problems itself.

Government regulators are trying to track what may amount to hundreds of millions of dollars that were not in segregated customer accounts, a person familiar with the investigations told The Times. The person could not speak on the record because of the sensitivity of the issue.

MF Global filed for bankruptcy protection Monday after its bets on bonds issued by struggling European countries went bad.

At a U.S. Bankruptcy Court hearing Tuesday in Manhattan, a lawyer for the firm said that "to the best knowledge of management, there is no shortfall" in the firm's funds, Bloomberg reported.

The problems raise further questions about the strategy that Corzine, MF Global's chief executive and former CEO of Goldman Sachs Group Inc., took after joining the firm in 2010. The company had been a client-focused brokerage, but Corzine pushed it to take more risky bets with its own money.

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