MF Global mixed clients' funds with its own
CBC News
Posted: Nov 1, 2011 12:02 PM ET
Last Updated: Nov 1, 2011 5:58 PM ET
Regulators say money is missing from customer accounts held by MF Global, led by Jon Corzine, shown in January. (Mel Evans/Associated Press)
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MF Global, the troubled New York-based securities firm, broke rules requiring it to keep clients' money and its own funds in separate accounts, the head of the Chicago Mercantile exchange says.
CME Group Inc. CEO Craig Donohue said Tuesday MF Global was "not in compliance" with requirements set by his company and the Commodity Futures Trading Commission, its key regulator.
"While we are unable to determine the precise scope of the firm's violation at this time, we are investigating the circumstances of the firm's failure," Donohue said.
Also on Tuesday, the Wall Street Journal reported that the FBI plans to look into questions about whether money is missing from client accounts, and if so, whether that constitutes a crime.
The newspaper did not identify its source.
MF Global filed for bankruptcy protection on Monday.
Regulators said they have discovered money is missing from some of the firm's customer accounts.
Jon Corzine, a former New Jersey governor, chief of Goldman Sachs and major fundraiser for U.S. President Barack Obama, leads MF Global.
Corzine has helped raised at least $500,000 for Obama's re-election campaign since April.
Corzine prompted MF Global to make more trades for the company's own profits, a practice known as proprietary trading.
Some of that trading was conducted on the CME.
He pushed for the $6.3 billion US bet on debt issued by Italy, Spain and other European nations with troubled economies that ultimately doomed the company.
Companies regulated by the CFTC must account for clients' money and investments separately from money and investments belonging to the company.
The CFTC said in September that MF Global was overvaluing some of its European debt investments. It required the company to raise more cash, according to court papers filed on Monday.
MF Global reported its biggest-ever quarterly loss last week, mainly because of losses on proprietary trading.
Credit rating agencies downgraded the company's bonds to junk status, and business partners demanded that it put up more cash to guarantee its trades. The result was a severe cash crunch that forced MF Global into bankruptcy court.
Debt from many European nations has lost value in recent months because bond investors fear one or more countries might default.
On Monday, the New York Federal Reserve said it suspended MF Global from doing new business as a primary dealer.
Primary dealers are companies considered financially secure enough to sell US government debt on behalf of the Federal Reserve.
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