Exclusive - MF Global mixed funds, transferred abroad

WASHINGTON Sat Dec 3, 2011 12:33pm GMT

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011. REUTERS/Shannon Stapleton

The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York November 2, 2011.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - Regulators investigating the collapse of MF Global have determined that the firm combined money between securities and futures accounts owned by customers, and transferred funds outside the country to at least one entity, a source said on Friday.

"The further we get into (the investigation) the more complex it is ... but we're making progress," the source said, adding that the commingling and transferring of money is making it harder for regulators to determine what money belongs where.

MF Global took futures segregated money and put it into the account for customer securities, essentially mixing futures and securities that were both owned by customers, said an official familiar with the matter.

Until now, it was believed that only customer futures accounts were affected.

The source also told Reuters that MF Global had been using customer funds for "several days if not weeks" rather than just a few days before the firm collapsed.

Regulators had previously thought the firm was using customer funds on the Thursday and Friday before it filed for bankruptcy on October 31.

CME Group, the Chicago exchange where MF Global traded, said it had reviewed the company's books a week before the bankruptcy and found no issues with the customer money.

If MF Global started improperly dipping into its customers' accounts long before the firm's collapse, the allegation would raise questions of why the regulators and auditors failed to spot such behaviour.

Congress has already started asking questions about potential lapses in regulatory oversight of MF Global. The pressure on regulators would only increase if MF Global turns out to have misused customer funds over an extended period of time.

"Establishing the specifics of what happened is key to figuring out how the system failed and how to fix it going forward," Republican Senator Chuck Grassley of Iowa said in a statement on Thursday. "Congress will need to keep drilling down."

MF Global collapsed in late October after the firm was forced to reveal that it had made a $6.3 billion (4 billion pound) bet on European sovereign debt.

An effort to sell the firm failed, partially due to the revelation that hundreds of millions of dollars in customer money were not where they should have been.

Investigators such as the Commodity Futures Trading Commission have been scouring the company's books, described as messy and unorganized, for the fund shortfall that has been estimated as much as $1.2 billion by the liquidating trustee.

However, regulators have been at odds with the trustee, believing that figure is too high.

(Additional reporting by Philip Shishkin; Editing by Gary Hill)

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