Nearly three months after MF Global Holdings collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.
As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a "significant amount" of the money could have "vaporized" as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, a person close to the investigation was cited as saying Monday.
Many officials now believe certain employees at MF Global dipped into the "customer segregated account" that the New York company was supposed to keep separate from its own assets -- and then used the money to meet demands for more collateral or to unfreeze assets at banks and other counterparties as they grew more concerned about their financial exposure to MF Global.
Investigators also are examining other scenarios that have gained traction in recent weeks, such as the possibility that MF Global suffered steep losses on investments made using customer money. Officials investigating the case have looked into whether such investments were appropriate under rules at the time.
As money poured out of MF Global, much of it likely passed through J.P. Morgan Chase and other banks where the securities firm had accounts, as well as trade-clearing partners such as Depository Trust & Clearing and LCH.Clearnet Group, people familiar with the matter said.
Those companies have denied being knowingly in possession of any missing MF Global money, and any efforts to make them fill the hole would face daunting hurdles. And because the firms usually were middlemen between MF Global and other counterparties, the funds they touched were then scattered widely, complicating the search.
Of the $6 billion kept at MF Global by farmers, hedge funds, floor traders and other customers when panic erupted over its exposure to European sovereign debt and shaky financial outlook, about $5.3 billion has been located, according to James Giddens, the bankruptcy trustee for the securities firm's US-based brokerage operation.
But hundreds of millions of customer dollars are potentially snarled in litigation with other parts of MF Global, including its UK arm, and US officials might never be able to recover those funds. As a result, Giddens believes the shortfall is at least $1.2 billion, though regulators at the Commodity Futures Trading Commission and CME Group, parent of the Chicago Mercantile Exchange and New York Mercantile Exchange, have estimated the total is smaller than that.
Lawmakers have pushed for answers from Jon S. Corzine, the former New Jersey governor and Goldman Sachs Group chairman who led MF Global into its big European bet and was CEO when the company failed.
On Thursday, a House Financial Services subcommittee will zero in on the securities firm's risk-management practices and the role of credit-rating firms in the collapse. Among the people scheduled to testify at the hearing is Michael Roseman, a former chief risk officer at MF Global who raised serious concerns several times in 2010 about the growing bet on European bonds by Corzine.
So far, Giddens' office has returned about 72 percent of the money in customers' US accounts when MF Global filed for bankruptcy at the end of October. Money in accounts outside the US remains frozen, and officials have received few big breaks in the case.
REcieved a few breaks in the case.. lets see a few convictions and prison sentences
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