MF Global accounts shock leaves clients scrambling

Tue Nov 1, 2011 7:36pm EDT
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By Ann Saphir and Jonathan Spicer

CHICAGO/NEW YORK (Reuters) - MF Global Holdings Ltd failed to protect customer accounts by keeping them separate from its own funds, said a top U.S. exchange regulator, another shock for commodity markets scrambling to contain fallout from the brokerage's bankruptcy.

The revelation on Tuesday by CME Group Inc suggests Jon Corzine's MF Global violated a central tenet of futures brokerages. It could erode confidence in a market that for decades has enjoyed a sterling reputation for safety.

MF Global cannot account for a large amount of customer money that was supposed to be kept separate from other funds, sources said, and regulators are scrambling to review the broker's accounts. The cause of the shortfall -- including whether the company pilfered client funds or merely cannot account for the money -- was not clear.

The Federal Bureau of Investigation is looking into the matter, a person briefed on the situation said.

MF Global did not keep customer accounts separate from the firm's funds, said Craig Donohue, CEO of exchange operator and market regulator CME Group.

The New York Times reported late on Monday that federal regulators discovered that hundreds of millions of dollars in customer money -- supposed to be segregated and protected from the rest of the business -- had gone missing.

At the U.S. Bankruptcy Court in Manhattan, MF Global's lead attorney, Ken Ziman, said all of the funds in the company's broker dealer are accounted for.

To management's best knowledge, "there are no shortfalls" in brokerage accounts, said Ziman, of law firm Skadden, Arps, Slate, Meagher & Flom, as MF Global's first bankruptcy hearing began on Tuesday.   Continued...

<p>A man exits the office complex where MF Global Holdings Ltd have an office on 52nd Street in midtown Manhattan New York, October 31, 2011. REUTERS/Brendan McDermid</p>