David Goldman for The New York TimesJon S. Corzine on the trading floor of MF Global last year. Mr. Corzine’s Wall Street comeback ended early Friday.
The missing customer money at MF Global is still missing.
On Friday, funds from the bankrupt brokerage firm suddenly surfaced at JPMorgan Chase. Washington and Wall Street, for a moment, were hopeful it was the money they had been searching for all week.
But then, just as quickly, nearly everyone agreed it was not the missing money, and the hunt was on again.
While MF Global has more than $2 billion in accounts at JPMorgan, regulators had previously accounted for those funds, according to people briefed on the matter who were not authorized to speak publicly. Federal officials estimate that roughly $600 million has been misplaced or misused or has disappeared altogether, two of the people said.
The revelation — and the sharp reversal — is the latest debacle in the bankruptcy of MF Global.
Adding to the drama, the firm’s chief executive, Jon S. Corzine, the former Democratic governor of New Jersey and head of Goldman Sachs, resigned early Friday. In a more surprising development, Gary Gensler, head of the Commodity Futures Trading Commission, will no longer participate in the investigation due to his long acquaintance with Mr. Corzine, according to a person with direct knowledge of the matter.
It is just the beginning. Regulators are still camped out at the brokerage firm’s Midtown Manhattan headquarters, poring over the books. Exchange officials are transferring customer accounts to other brokerage firms. And company executives are helping to close the firm.
The process of winding down MF Global will be long and arduous. The courts continue to sort through the mess at Lehman Brothers, more than three years after the investment bank filed for Chapter 11.
“It’s going to be complicated when you have a multibillion-dollar company,” said Professor J. Samuel Tenenbaum, the director of the Investor Protection Center at Northwestern University School of Law. “That just doesn’t happen overnight. It would be nice to think that you can get this done quickly, but that would be fanciful.”
The demise of MF Global can be traced to risky bets on European sovereign debt.
Soon after joining the firm in 2010, Mr. Corzine moved to transform the sleepy brokerage firm into a full-service investment bank in the mold of his former employer, Goldman. He aggressively bought up the bonds of troubled economies like Italy, Ireland and Spain, betting that the Continent would not let the countries default on their loans.
As the sovereign debt crisis dragged on this summer, regulators noticed the risky bets and pushed the firm to hold more capital against the investments. The move alarmed shareholders, clients and rating agencies, inciting a crisis of confidence. With the stock sliding, the firm searched desperately for a suitor.
But the missing money proved the death knell for MF Global.
Before dawn on Monday, the firm uncovered a nearly $1 billion hole in its customer accounts. The startling discovery scuttled a last-minute deal to sell part of the business to Interactive Brokers Group, a Connecticut rival. Out of options, MF Global filed for bankruptcy that morning.
Within hours, regulators, including the Securities and Exchange Commission and the Commodity Futures Trading Commission, started investigating MF Global and the missing money. The Federal Bureau of Investigation joined the fray on Tuesday. Federal authorities worried that MF Global had violated a basic principle in this business: customer assets must be kept separate from company funds.
As the scrutiny intensified, Mr. Corzine was said to have hired Andrew F. Levander, a prominent criminal defense lawyer. Mr. Levander, the chairman of Dechert, has represented other Wall Street executives including John Thain, the former chief executive of Merrill Lynch. Mr. Corzine has retained two bankruptcy lawyers from the firm Perkins Coie to represent him in the civil Chapter 11 proceedings.
Neither Mr. Corzine nor MF Global have been accused of any wrongdoing. MF Global says the shortfall is temporary, as additional money will flow in from banks and clearinghouses.
In resigning on Friday, Mr. Corzine ended what was supposed to be his grand return to Wall Street after nearly a decade in politics. The company said that he would not seek his $12 million in severance.
“I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,” Mr. Corzine, 64, said in a statement. “I intend to continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.”
Mr. Gensler, head of the C.F.T.C., decided Thursday to step back from the inquiry, and the following day he did not participate in an agency briefing on MF Global; Mr. Gensler had worked for Mr. Corzine while both were at Goldman Sachs in the 1990s.
As regulators try to untangle the books, customers, whose accounts were frozen on Monday, are waiting to get their money back. The CME Group, the exchange where MF Global did business, is transferring client funds to other brokerage firms, including R.J. O’Brien and ABN Amro, people involved in the process said.
But customers won’t be made whole — at least not yet.
Industry groups pushed for customers to receive about 70 percent of their cash, according to the people involved in the process. But because roughly $600 million hasn’t been found, clients will only get on average 60 cents on the dollar, court filings show.
The situation puts customers, including individual investors, hedge funds and big companies, in a financial bind. Until the money surfaces, many clients will have to come up with extra cash to maintain their positions, or they will be forced to liquidate their trades, potentially at a loss.
It could take some time for the money to materialize, assuming it does.
With scarce information, even regulators and industry insiders are grasping for answers. The situation was underscored by the brief elation following media reports that the missing money might have turned up.
But, it hadn’t. JPMorgan, which confirmed MF Global had accounts with the bank, said in a statement “that it does not have any information as to whether any such balances are related in any way to the ‘missing’ customer funds.”
Azam Ahmed, Kevin Roose and Peter Lattman contributed reporting.
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