MF Global: A Crisis of Confidence

It’s the latest Wall Street “whodunit,” as regulators and the FBI search for $600 million in missing customer cash from bankrupt brokerage MF Global. Headed by former Goldman Sachs CEO and New Jersey Gov. Jon Corzine, MF Global filed for bankruptcy protection on Oct. 31, following a string of bad bets on credit derivatives linked to risky fixed-income debt.

It was at the bankruptcy filing that MF Global revealed the $600 million in missing customer funds – money that the firm was supposed to keep in “segregated” accounts. Until the missing $600 million materializes, investors’ supposedly safe accounts are frozen.

The latest black mark against MF Global follows a long list of similar black marks. Over the past decade, MF Global has been sanctioned half a dozen times and fined a total of $12 million, including a $10 million fine levied in 2009 for “significant supervision violations” that occurred during the five years prior, according to Commodity Futures Trading Commission enforcement archives.

CFTC commissioners have characterized the process of sifting through MF Global’s finances as a “magical mystery tour” and that the company’s books are nothing short of a “disaster.”

And it could be far worse.

“My concern is that at the very end as things got very dire, as liquidity dried up, that you had some people in collusion go in and commit fraud here and I don’t know that that did occur, but that’s what it’s starting to smell like,” said Lynn Turner, former chief accountant at the Securities and Exchange Commission (SEC), on Bloomberg Television last week.

“It’s amazing that we’re sitting here today trying to find out today what happened with $600 million,” Turner said. “It’s like it just vanished into thin air and the fact that people today can’t tell us where the $600 million went is not a good sign.”