MF Global accounts shock leaves clients scrambling

Wed Nov 2, 2011 12:05pm 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 showing preliminary interest in regulatory probes, a person briefed on the matter 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. Even though the client money could eventually be accounted for, the regulator believes the firm broke the segregation rules.

Another regulator, the Commodity Futures Trading Commission, voted to issue subpoenas to the firm, the Wall Street Journal reported.

Neither MF Global nor Corzine has been accused of any wrongdoing.

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.   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>