New York – Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, a former New Jersey governor and U.S. senator, several people briefed on the matter said Monday.
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The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy Monday.
Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.
The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said.
Neither MF Global nor Corzine has been accused of any wrongdoing.
MF Global’s travails stemmed from its purchase of big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount. Once Europe had solved its fiscal problems, those bonds would be very profitable.Â
But when that bet came to light in a regulatory filing, it set off alarms on Wall Street. By Friday evening, MF Global was under pressure to put up more money to support its trading positions, threatening to drain the firm’s remaining cash.
Corzine and his advisers frantically called nearly every major Wall Street player, hoping to sell at least some of the firm in a bid for survival.
By Saturday, Jefferies & Co. became the lead bidder to buy large portions of MF Global, before backing out late in the day. By late Sunday evening, MF Global had all but signed a deal with Interactive Brokers.
But in the middle of the night, as Interactive Brokers investigated MF Global’s customer accounts, the potential buyer discovered a serious obstacle: Some of the customer money was missing, according to people close to the discussions. The realization alarmed Interactive Brokers, which then abandoned the deal.
Not to worry, it is now believed to be a small sum, less than 700 million!
At the very least Corzine’s passport should be confiscated until this shakes out.