NEW YORK?? MF Global, the securities firm led by former Goldman Sachs chief and former New Jersey Gov. Jon Corzine, has admitted to using clients' money as its financial troubles mounted, a federal official said Tuesday.
An MF Global executive made the admission to federal regulators in a phone call early Monday after regulators discovered money missing from clients' accounts, The Associated Press reported, citing an official familiar with the conversation.
The official spoke on condition of anonymity because he was not authorized to discuss a preliminary investigation by federal regulators.
Government rules require securities firms to keep clients' money and company money in separate accounts. Violating the rule could result in civil penalties.
MF Global, which filed for bankruptcy protection Monday, faced a cash crunch after making multibillion-dollar bets on European sovereign debt.
Hundreds of millions of dollars of customer's money have gone missing from the brokerage firm, sources told The New York Times.
The discovery of the missing millions stopped a last-minute deal to sell a major part of MF Global to another brokerage firm from going ahead, The New York Times reported.
The company's main exchange regulator, CME, said earlier Tuesday that MF did not separate its customers' accounts from the firm's funds as required by law, Reuters reported.
MF Global files for bankruptcy protection"CME has determined MF Global is not in compliance with Commodity Futures Trading Commission and CME customer segregation requirements," CME Group Inc Chief Executive Craig Donohue said. Futures brokers must keep customer accounts separate from each other and from the firm's own money.
Donohue said CME is looking into exactly what happened at MF Global.
Corzine, 64, who ran Goldman Sachs before becoming a U.S. senator and then governor of New Jersey, had been trying to turn MF Global into a mini-Goldman by taking on more risky trades.
But once regulators forced it to fully disclose its bets on debt issued by countries including Italy, Portugal and Spain, the company's business rapidly unraveled with no buyers willing to step in.
The fall of the group sent shockwaves through commodities markets as traders feared the damage could spread, or similar problems could occur with other players.
Reuters reported that MF was allowed to resume liquidating customers' positions on major U.S. futures exchanges, which may provide a little relief for some of its clients.
MF Global's meltdown in less than a week made it the biggest U.S. casualty of Europe's debt crisis, and the seventh-largest bankruptcy by assets in U.S. history. It was a stunning fall for a firm that can trace its heritage back 230 years to the founding of many of the world's commodity exchanges.
The Times, citing "people briefed on the matter," said it was initially thought some $950 million was missing, but this figure has dropped to under $700 million.
No accusation of wrongdoing
The paper said that MF Global and Corzine had not been accused of doing anything wrong.
MF Global's shares plunged last week as its credit ratings were cut to junk.
The Chapter 11 bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc. broke down earlier Monday, a person familiar with the matter said.
KPMG, appointed as administrators to MF Global's UK arm, said it had been busy closing out positions all day under a new UK regime set up to prevent a repeat of the slow and painful work-out of the 2008 collapse of Lehman Bros.
"It's still a large number. It's still billions," Richard Fleming, KPMG's head of restructuring, told Reuters. "We'll know a lot more at the end of the day," he said.
Fleming said he was confident clients would see their money again: "Our strategy this morning has been ... where we have clients whose position is reconciled, and are due funds, then that money will flow," he said.
MF Global officials have not responded to requests for comment.
'Grave concerns'
Regulators had expressed "grave concerns" about the viability of MF Global, which filed for bankruptcy only after "no viable alternative was available in the limited time leading up to the regulators' deadline," the company's chief operating officer, Bradley Abelow, said in a court filing. Late Tuesday NBC New York reported the FBI had joined in an investigation of the matter.
One of the regulators that pressed MF Global, the CFTC, was unhappy with the brokerage's failure to give it the required data and records.
"(To) date we don't have the information that we should have," said a source close to the CFTC.
In the end, regulators and markets reacted swiftly to MF Global's troubles, which may have been exacerbated by Corzine's affinity for risk-taking over the course of a career that took him to the top echelons of Wall Street and then into politics.
"They went for what would be a very profitable trade with European sovereign debt that obviously has blown up in their face, and brought the company down," said Dave Westhouse, vice president of Chicago retail broker PTI Securities and Futures.
The Associated Press and Reuters contributed to this report.
Source: http://www.msnbc.msn.com/id/45114515/ns/business-us_business/
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