September 22, 2023

DealBook: Judge Approves MF Global Liquidation Plan

Jon S. Corzine, former MF Global chief. Some lawyers are skeptical of the outcome of talks with the bankruptcy trustee.Jonathan Ernst/ReutersJon S. Corzine, former MF Global chief. Some lawyers are skeptical of the outcome of talks with the bankruptcy trustee.

A day after MF Global’s bankruptcy trustee hinted he might sue top executives for “negligent conduct,” his separate plan to liquidate the firm secured court approval, ushering in a final phase of a case that rattled Wall Street and prompted a federal investigation.

At a hearing in bankruptcy court in Manhattan on Friday, nearly 18 months after the brokerage firm imploded, Judge Martin Glenn cleared the way for Louis J. Freeh, the trustee, to sell the firm’s remaining assets and return money to creditors. For Mr. Freeh, a former director of the F.B.I. who is liquidating MF Global’s estate, the ruling was a major step toward ending the largest Wall Street bankruptcy since the financial crisis.

When the firm collapsed — and improperly tapped customer money to plug a gap in its own finances — the blowup consumed Wall Street and Washington. MF Global, then run by Jon S. Corzine, the former governor of New Jersey, became a byword for excessive risk-taking and the target of a federal investigation into $1.6 billion in missing customer money.

Criminal and civil investigations continue. And in a report released on Thursday, Mr. Freeh suggested that he might sue Mr. Corzine and other top executives, accusing them of engineering a “risky business strategy” and ignoring “glaring deficiencies” in internal controls.

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Mr. Freeh pointed to Mr. Corzine’s outsize bet on European debt. While the bonds were not by themselves to blame for the fall of MF Global, the bet alarmed investors and rating agencies, sending the firm into a tailspin.

Mr. Freeh agreed to postpone the lawsuit while he pursued mediation with Mr. Corzine. A spokesman for Mr. Corzine argued that “there simply is no basis for the suggestion that Mr. Corzine breached his fiduciary duties or was negligent.” The spokesman, Steven Goldberg, added that “the trustee’s report, with its allegations of negligent conduct, is a clear case of Monday-morning quarterbacking.”

Judge Glenn’s decision to approve the liquidation plan will empower Mr. Freeh to wind down his role in the case. When the plan becomes effective, he will hand the reins in part to a committee of MF Global creditors.

Mr. Freeh attended the hearing on Friday to speak in favor of the liquidation deal.

Under the plan, MF Global will pay up to 34 percent of claims filed by hedge funds and other unsecured creditors that owned MF Global bonds. The hedge funds, including Silver Point Capital, supported the plan.

JPMorgan Chase, one of MF Global’s largest lenders, will fare better. The bank is expected to collect up to 76 percent of its claims under the plan approved on Friday.

The firm’s customers, whose money vanished after the bankruptcy, are also poised for a big payout. James W. Giddens, a trustee whose job was to return money to customers, has recovered most of the funds from MF Global’s banks and clearinghouses. Mr. Giddens, who already returned about 89 percent of the missing money, recently sought court approval to dole out up to about 97 percent.

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DealBook: House Report Details Collapse of MF Global

Jon Corzine, the former chief of MF Global, at a House panel in 2011.Alex Wong/Getty ImagesJon Corzine, the former chief of MF Global, at a House panel in 2011.

2:52 p.m. | Updated

WASHINGTON – Congressional Republicans on Thursday delivered a long-awaited “autopsy” report on MF Global, sharply criticizing regulators for failing to share information as the brokerage firm was reeling.

The 100-page report, from Republican members of the House Financial Services Committee’s oversight panel, describes a “disorganized and haphazard” approach to regulatory oversight in the week before MF Global collapsed in 2011. The Commodity Futures Trading Commission and the Securities and Exchange Commission, according to the report, failed to coordinate as the firm was on the brink.

Two days before the collapse of the firm, top S.E.C. officials joked about three conference calls among regulators being scheduled for 10 a.m. “Ahhhh, coordination in action!” Mary L. Schapiro, chairwoman of the S.E.C., wrote in an e-mail to Robert W. Cook, the agency’s head of trading and markets.

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In the final hours before bankruptcy, the report said, MF Global officials said the futures commission “pressured” the firm to transfer $220 million to plug a hole in customer accounts. It did so over the objections of the S.E.C. and other regulators. When Ms. Schapiro learned of the futures commission’s orders, she responded in an e-mail to a colleague, “Without telling us? That is unacceptable.”

The e-mails underscored the breakdown in communication among federal officials that, according to the report, contributed to the firm’s demise. The report also took aim at the Federal Reserve Bank of New York, saying it “should have exercised greater caution” when approving MF Global’s application for the coveted status of selling securities on the Fed’s behalf.

Lawmakers suggested that investors and customers would have been better served if the S.E.C. and the futures commission streamlined their operations or combined into a single agency that oversaw all capital markets, citing “an apparent inability” of the regulators to coordinate their actions.

Mary Schapiro, chairwoman of the Securities and Exchange Commission, and Gary Gensler, chairman of the Commodity Futures Trading Commission, at a House panel in June.Daniel Rosenbaum for The New York TimesMary L. Schapiro, chairwoman of the Securities and Exchange Commission, and Gary Gensler, chairman of the Commodity Futures Trading Commission, before a House panel in June.

“We didn’t need additional regulation. We needed regulators actually doing their job,” Representative Randy Neugebauer, a Republican from Texas who led the investigation as chairman of the oversight panel, said at a news conference on Thursday.

Futures commission officials declined to comment. John Nester, a spokesman for the S.E.C., said his agency would review the panel’s findings. He added that the report did not mention the S.E.C.’s having informed the C.F.T.C. about capital charges imposed on MF Global in August.

The report, a sort of public shaming of MF Global’s employees and federal watchdogs, further traced the debacle to the firm’s top executives. Republicans placed blame on the former chief executive, Jon S. Corzine, who they say ratcheted up a bet on European debt without regard for internal controls or the danger to clients. The report also argued that the firm was not “forthright with regulators or the public” about the massive trade and its broader health.

Republicans released the report months later than anticipated and without the support of House Democrats.

Some dissent was sowed in Congressional hearings that at times featured political bickering among members. On Wednesday, the oversight panel’s top Democrat, Representative Michael Capuano of Massachusetts, declined to endorse Mr. Neugebauer’s findings, saying he agreed with a number of the conclusions but needed additional time to review the document. He said he would soon file an addendum to the report.

For the targets of the report, the splintered support provides a path to undermining the findings. Democratic regulators and Mr. Corzine, a former Democratic senator from New Jersey, could dismiss the investigation as a partisan attack.

House Republicans, however, say the examination relied on an exhaustive review of evidence rather than political motivations.

The report, the outgrowth of several Congressional hearings with MF Global’s executives and other officials, is the culmination of a yearlong investigation that sought to chronicle the firm’s undoing and rebuke those at fault. The House panel cobbled together its findings from dozens of interviews with former employees and more than 240,000 documents.

While short on revelations, the document is the most significant Congressional effort yet to seek redress for MF Global’s errors.

Criminal authorities investigating MF Global’s collapse are leery of filing charges against the top executives, suspecting that chaos and lax controls resulted in customer money going missing. And while regulators are still pursuing civil enforcement actions, in which the legal bar is lower, officials have not yet decided a course.

Even after a year of overlapping investigations, MF Global’s customers remain in the lurch. Farmers and ranchers, who traded futures contracts through MF Global to protect themselves from the price swings of their crops, have recovered about 82 percent of their money but are still owed millions of dollars.

James W. Giddens, the court-appointed trustee seeking to recover money for MF Global’s customers, has joined a lawsuit against several top MF Global executives, including Mr. Corzine, to make up for the missing funds.

In a report that largely tracks the findings issued by Congressional Republicans, Mr. Giddens criticized MF Global employees for tapping customer money to pay the firm’s own bills in a last-ditch bid for survival.

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DealBook: Wall Street Scandals Fill Lawyers’ Pockets

NEW WORK Ira Lee Sorkin represents a Barclays trader.Andrew Harrer/Bloomberg NewsNEW WORK Ira Lee Sorkin represents a former Barclays trader.

As Wall Street has faced a string of scandals, bank executives, investors and customers have suffered. But one group is thriving: lawyers.

Called upon to navigate crisis after crisis, the white-collar bar is having a banner year with cases like the collapse of the futures brokerage firm MF Global, a multibillion-dollar trading blunder at JPMorgan Chase and suspicions of money laundering at HSBC.

The global investigation into the manipulation of a crucial benchmark interest rate known as the London interbank offered rate has emerged as the most profitable for the legal profession.

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While many of the recent scandals have been relatively isolated, the scope of the rate-rigging scandal has been vast, encompassing 16 banks. More than 10 government authorities around the world are looking into whether the banks reported false rates, potentially affecting trillions of dollars of financial products like mortgages and student loans.

The investigation is still in its early days, but experts say it is likely to drag on for years. Authorities could arrest traders this year, and more cases against big banks are expected. Earlier this year, Barclays agreed to pay $450 million to settle accusations that it had reported false rates.

Libor Explained

HIGH STAKES Barclays, hardest hit in the Libor scandal, hired Sullivan  Cromwell, which is led by H. Rodgin Cohen.Andrew Harrer/Bloomberg NewsHIGH STAKES Barclays, hardest hit in the Libor scandal, hired Sullivan Cromwell, which is led by H. Rodgin Cohen.
HIGH STAKES Jon S. Corzine, left, former chairman and chief executive of MF Global Holdings, and his lawyer Andrew Levander.Andrew Harrer/Bloomberg NewsHIGH STAKES Jon S. Corzine, left, former chairman and chief executive of MF Global Holdings, and his lawyer Andrew Levander.

Every major bank under investigation has hired a major law firm to represent it. An army of white-collar defense lawyers has been assembled to defend individuals. Plaintiffs’ lawyers have filed more than a dozen lawsuits against the big banks, claiming damages on behalf of institutions, pensions and municipalities like the City of Baltimore.

“This is looking like a full employment act for the corporate bar,” said Samuel W. Buell, a professor at Duke Law School. “It’s very hard to see how you draw a tight circle around this issue.”

Over the last few decades, white-collar law has transformed from a boutique business into a major focus for the biggest law firms. As firms expand globally and the federal government makes corporate prosecutions a higher priority, the practice has become a profit center.

Companies do not like to scrimp with civil and criminal cases. The stakes are too high.

In the last decade, a number of major cases have engulfed corporate America — and by extension, white-collar lawyers. The stock options backdating scandal, which emerged in 2006, swept up more than 100 companies and many executives. The cases provided much work for lawyers, including internal investigations at major companies and notable criminal defense efforts. A few years earlier, accounting scandals at companies like Enron and WorldCom generated similarly handsome legal fees.

Not all white-collar crackdowns are the same. Consider the federal government’s insider-trading cases. The charges affect a handful of people and do not require the machinery of an entire legal institution. One former prosecutor in the Southern District of New York who spoke on the condition of anonymity because the conversations had been private said that defense lawyers jokingly complained that the hedge funds and other traders affected by the investigation tended to be low-margin clients.

With the interest-rate-fixing case, law firms started seeing the dividends in 2008. When the investigation got under way, the Commodity Futures Trading Commission, the American regulator, asked a handful of major banks to conduct internal inquiries. The goal was to figure out the extent of potential manipulation, focusing on a crucial benchmark known as the London interbank offered rate, or Libor.

At the time, the banks hired outside counsel to review the e-mails and documents as well as to conduct interviews. Barclays, the hardest-hit institution to date, hired Sullivan Cromwell, which is led by H. Rodgin Cohen. Paul, Weiss, Rifkind, Wharton Garrison is representing both Citigroup and Deutsche Bank.

The firms put dozens of top lawyers to work unearthing the worst of what had transpired, then gave their findings to regulators. Those reports form the backbone of the cases against the banks.

In the midst of the internal investigations, banks began identifying individuals who may have improperly tried to influence interest rates. Those employees are entitled to counsel, paid for by the banks. The bank’s law firm will usually refer the individuals to other white-collar lawyers, since the interests of the banks and the employees may differ. Despite the effort to reduce conflicts, the referrals can be problematic because the banks are paying the bills.

“Sometimes you may be best served by going with a lawyer who has established relationships with the people who represent the company,” said Charles D. Weisselberg, a professor at the University of California, Berkeley School of Law and co-author of a recent study examining white-collar practices at major law firms. “Or sometimes you may want someone more independent of the company lawyers who may not be looking to them for a referral in the future.”

The referral system has been big business in the Libor case.

Dozens of individuals have hired lawyers, according to interviews with lawyers. Andrew J. Levander, the Dechert lawyer who represents former Gov. Jon S. Corzine of New Jersey in the MF Global matter, has been retained by Robert E. Diamond Jr., a former Barclays chief executive. Ira Lee Sorkin, who represented the Ponzi scheme mastermind Bernard L. Madoff, has been retained by a former trader at Barclays.

The most damaging aspects of the case could be traders’ efforts to manipulate the index to squeeze more money from clients. After one exchange, a rate submitter at Barclays told a trader, “Always happy to help. Leave it with me, sir,” according to regulatory documents. Another responded, “Done … for you big boy.”

“The tenor of the exchanges reflects a relentless indifference to the rights and interests of their clients,” said Michael Hausfeld, a plaintiff’s lawyer in the Libor case. He said it could take a long time to sift through the evidence. “There are a lot of nuances here that still have to be studied, but it’s clear there was widespread disruption caused in the market.”

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DealBook: MF Global Dodged Capital Requirements, Study Says

Jon Corzine, former chief of MF Global, at a House panel in 2011.Alex Wong/Getty ImagesJon Corzine, former chief of MF Global, at a House panel in 2011.

Under pressure from regulators last summer to increase its capital cushion, MF Global moved some of its risky European debt holdings to an unregulated entity in an effort to avoid having to raise extra money, according to a new report. The revelation raises new questions about MF Global’s actions in its last months — in particular, how it responded to regulators. The brokerage firm had previously disclosed that it had met the capital requirements, but never mentioned that it had transferred some bonds rather than raising additional money. The shift was detailed in a report by Louis J. Freeh, the trustee overseeing the bankruptcy of MF Global. The report is separate from the one issued Monday by James W. Giddens, the court-appointed trustee charged with recovering money for MF Global’s customers.

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“This strategy allowed the MF Global Group to transfer the economic benefits and risks,” thus reducing the “regulatory capital requirements,” the report by Mr. Freeh said.

Shifting the bonds to an unregulated entity to avoid capital requirements is unusual at financial firms, corporate accounting specialists say. Regulators expressed concerns about the maneuver, although ultimately they did not block it. The Financial Industry Regulatory Authority, Wall Street’s self-regulator, said it lacked jurisdiction to pursue the matter further.

“It’s a shell game, and the problem is the regulators buy off on this stuff, and then when it implodes, they always look so stupid,” said Lynn E. Turner, the former chief accountant at the Securities and Exchange Commission. “Common sense says why would you accept these types of shenanigans?”

The new details are part of Mr. Freeh’s 119-page report outlining the status of his investigation of MF Global, which collapsed last October after misusing roughly $1 billion of customer money. In the report, which was filed in Federal Bankruptcy Court in New York late Monday, Mr. Freeh said that creditors such as banks and big investors could have more than $3 billion in claims against the company.

“This report gets to the heart of the complex intercompany relationships inherent in a global firm that provided financing for its affiliates and subsidiaries all over the world,” said Mr. Freeh, a former director of the Federal Bureau of Investigation. “We believe this report provides increased transparency as to how the firm’s capital flowed through these entities.”

Mr. Freeh, who is responsible for recovering money on behalf of MF Global’s creditors, has cast a worldwide net. The report lists claims against affiliates from Britain to Mauritius. But Mr. Freeh’s biggest potential target is Mr. Giddens, the trustee whose job is to return customers’ missing money.

Mr. Freeh has filed claims for more than $2.3 billion against a separate dealer entity that Mr. Giddens is overseeing, drawing the lines in an increasingly tense turf war between the men.

Ultimately, their missions — to claim a limited pool of money — are at odds. Mr. Giddens is working to get money from that pool for farmers, traders and hedge funds left with a roughly $1 billion hole in their accounts. Mr. Freeh is vying for much of the same funds, but on behalf of businesses and banks that are owed money by MF Global.

While publicly the men have played down tensions between them, privately the fight has become more acrimonious. Mr. Freeh’s report is littered with references to Mr. Giddens’s office not producing documents and information.

The tension could have affect customers. Mr. Giddens is expected to set aside a substantial amount of money because of Mr. Freeh’s claims, which would “take those assets out of the pool available for distribution to customers until the claims are resolved,” said Kent Jarrell, a spokesman for Mr. Giddens.

Mr. Giddens released his own status report earlier Monday. The 275-page document covered in painstaking detail the final weeks before MF Global’s collapse, and raised the prospect of filing civil suits against top executives at the firm to recoup assets, including the former chief executive, Jon S. Corzine.

The report provided the most exhaustive accounting yet of what transpired at the firm, including its decision to tap customer money with repeated frequency as the business suffered a crisis of confidence.

What the reports from Mr. Freeh and Mr. Giddens have in common is the portrait they paint of MF Global and its leadership. The firm that emerges from their pages is one that was constantly flying by the seat of its pants, prone to risky decisions with few controls to keep it in check. While the chaos in the last days of the firm is well known, what the reports show is that aggressive behavior was taking place well before the market took its toll.

Mr. Freeh is still conducting an investigation of what happened at the commodities brokerage firm. Yet, the details on MF Global’s efforts to skirt capital rules raise additional questions about what the firm — and its regulators — were doing to address a looming crisis.

Months before MF Global filed for bankruptcy, regulators raised concerns about the firm’s $6 billion bet on European sovereign debt. At the time, worries about highly indebted nations like Greece, Spain and Italy were causing volatility in the financial markets.

Given the market turmoil, the Financial Industry Regulatory Authority, or Finra, demanded that MF Global set aside extra money in case the trades soured. But MF Global objected, appealing the regulator’s ruling to the Securities and Exchange Commission. Mr. Corzine, the former Democratic governor of New Jersey and a former head of Goldman Sachs, lobbied the S.E.C. to back down, flying down to Washington from New York to make his appeal in person.

He lost. The agency sided with Finra. In a September 2011 filing, MF Global said it had “increased its net capital and currently has net capital sufficient to exceed both the required minimum level and Finra’s early-warning notification level.”

But the disclosure did not give the full picture. While MF Global did move some cash around to protect against losses, the firm also transferred roughly $3 billion in holdings of Italian bonds from its brokerage arm to “FinCo,” an unregulated entity of the firm, according to Mr. Freeh’s report. By doing so, MF Global met its requirements without having to raise money.

At the time, MF Global held about $6 billion in the debt of Belgium, Ireland, Italy, Spain and Portugal, representing about 14 percent of its assets and nearly five times the equity of the firm. The Italian bonds represented about half the firm’s risky European position.

After Finra’s capital request became known in October, investors were rattled, pushing the shares of MF Global sharply lower. Ratings agencies warned that they might cut the firm’s credit ratings, escalating the fears in the marketplace. The effect of downgrades from Moody’s Investors Service and Standard Poor’s were worsened by a poor earnings report. On Oct. 31, MF Global filed for bankruptcy.

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DealBook: Trustee Report Details Possible Claims Against Corzine and Others

James Giddens, trustee for MF Global Holdings.Andrew Harrer/Bloomberg NewsJames Giddens, trustee for MF Global Holdings.

A court-appointed trustee said in a report on Monday that he might pursue claims against Jon S. Corzine and other top executives of MF Global, citing their “negligence” in the collapse of the brokerage firm.

The 275-page report sheds new light on the firm’s disastrous last days, detailing its rapid downfall. In addition to Mr. Corzine, the trustee also cited Henri Steenkamp, the chief financial officer, and Edith O’Brien, an assistant treasurer who has become the focus of government investigations. The report states that the trustee believes there are “claims for breach of fiduciary duty and negligence, that may be asserted” against the three officials.

The report also focuses on banks like JPMorgan Chase that received customer money in the chaotic days before the firm went under. The trustee, James W. Giddens, said he would decide whether to pursue litigation to recover money for customers, who are missing some $1 billion, within 60 days.

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Based on interviews with more than 100 people and the review of hundreds of thousands of documents, the trustee’s report is the most comprehensive telling to date of MF Global’s bankruptcy last October.

The findings focus on the tenure of Mr. Corzine, a former Democratic governor of New Jersey who became MF Global’s chief executive in early 2010 and immediately began transforming it from a sleepy commodities brokerage firm into a something more akin to a mini-Goldman Sachs. As part of the transformation, he placed a big bet on the debt of shaky European nations, a gamble that incited a crisis of confidence that paved the way to the firm’s collapse.

“As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its treasury department and technology infrastructure, which was needed to meet the demands on global money management and liquidity,” Mr. Giddens said in a statement. “My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions.”

The positions prompted rating agencies to cut MF Global’s credit rating in late October, a final straw for a market already on edge. As panic ensued, trading partners and customers demanded money from the firm, which was forced to sell billions of dollars in securities to meet the obligations. Chaos reigned internally, too, as money flowed between divisions and out of the firm.

Since MF Global filed for bankruptcy on Oct. 31, farmers, hedge funds and other customers have been without at least a third of their money. Among those who received cash belonging to futures customers were banks, clearinghouses and even MF Global’s own securities customers.

The report highlights the banks and other companies on the receiving end of transfers involving customer money. Mr. Giddens specifically names JPMorgan Chase, which has already returned some money to the trustee. As MF Global’s main bank, JPMorgan was a central recipient of customer money in that final week. The trustee noted in his report that the bank was cooperating with his investigation.

Other banks in the trustee’s line of sight include Bank of New York Mellon, which is also cooperating with the investigation.

The trustee also said he was investigating the conduct of a major clearinghouse, the Depository Trust Clearing Corporation, that processed trades in the final weeks of the firm’s existence. That conduct includes the clearinghouse’s demands for additional cash from MF Global to clear trades, money that may have belonged to customers.

The report illuminates the vulnerabilities of the firm, including a desperate need for cash prompted by increased risk-taking under Mr. Corzine.

Mr. Corzine, the former head of Goldman Sachs, took over at the mid-level commodities brokerage firm in March 2010, fresh off an election loss for his second term as New Jersey governor. Almost immediately, he began adding risk at the firm to bolster earnings and resuscitate a deeply troubled business model, which relied almost exclusively on matching commodities trades for customers.

Mr. Corzine added new lines of business and began making bets with the firm’s own capital, efforts that were applauded by the market but led to an increased need for cash to finance operations. In particular, the trustee report notes, the bet Mr. Corzine placed on European sovereign debt “presented substantial liquidity risks.”

““The underlying liquidity problems at MF Global, however, did not commence in the fall of 2011,” the trustee states in the report. “Rather, liquidity had been a cause for concern before and throughout Mr. Corzine’s tenure at MF Global, yet systems and tools would enable accurate real time monitoring of liquidity were never implemented.”

Liquidity concerns became worse in the summer of 2011, prompting an assistant MF Global treasurer to write in an e-mail on Aug. 11 that she was having to spend “hours every day shuffling cash and loans from entity to entity,” the report says. Around that time, the Financial Industry Regulatory Authority, Wall Street’s self-regulator, became worried about MF Global’s European debt positions and ordered the firm to build up cash reserves.

The report outlines the disputes that emerged within MF Global about how to resolve the liquidity needs — including through customer money.

While customer money must be kept separate from the firm’s, it is common for a company like MF Global to add its own money to customer accounts as a buffer in the event of a volatile market move. The firm’s money, called excess funds, can we withdrawn by the company at will. But “confusion and differences of opinion existed within MF Global regarding the extent to which excess funds might be available to meet liquidity needs across the MF Global enterprise,” the report said.

Nevertheless, senior management began relying increasingly on this money to stay afloat, the report says. An internal conflict also arose around the use of a loophole that allowed the firm to use customer money sitting overseas, not simply the excess.

The company prepared an action plan in the event of a downgrade from the ratings agencies and other negative news, a move executives knew would cause significant problems. The document lists ways to maintain cash reserves, keep clients and generally stay alive should the market react poorly to the news.

But the trustee’s investigation found the risk analysis “seriously underestimated both the speed and extent of demands on liquidity,” by a magnitude of $600 million to $1 billion.

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DealBook: Corzine Denies Knowing That MF Global Was Tapping Client Funds

Jon S. Corzine, right, MF Global's former chief executive, consults with an aide during his testimony before a House hearing on his firm's demise.Alex Wong/Getty ImagesJon S. Corzine, right, MF Global’s former chief executive, consults with an aide during his testimony before a House hearing on his firm’s demise.

WASHINGTON — Jon S. Corzine, the former chief executive of MF Global, on Thursday denied claims that he had known the brokerage firm was improperly tapping customer funds to stave off collapse.

Mr. Corzine told a House panel that he had received assurances, “both orally and in writing,” that the firm followed federal laws about keeping customer money separate from firm funds.

But some lawmakers suggested that MF Global might have breached those rules on Oct. 28, three days before it filed for bankruptcy. After the firm transferred about $175 million to JPMorgan Chase to shore up an overdrawn account, the bank contacted Mr. Corzine to ensure that the money was not customer cash, according to testimony Thursday by the former chief executive.

Mr. Corzine told lawmakers that a back-office employee in MF Global’s Chicago headquarters had affirmed that the funds came from the firm and not customers.

“I don’t know of any loan that was backed by customer funds,” Mr. Corzine said on Thursday before the oversight subcommittee of the House Financial Services Committee. “I wouldn’t have authorized it.”

The hearing was the third appearance by Mr. Corzine — a former Democratic United States senator and a former governor of New Jersey — before a Congressional panel in just over a week. As in the previous hearings, lawmakers gained little insight on Thursday into the whereabouts of some $1 billion that vanished from MF Global. But the House committee did offer Mr. Corzine his first chance to rebut claims that he knew all along about some of the missing money.

His denials came in sharp contrast to testimony by Terrence Duffy, executive chairman of the CME Group, the exchange where MF Global did business. Mr. Duffy, testifying on Tuesday before a Senate committee, said that MF Global had used customer funds to lend from one arm of the firm to another — and that Mr. Corzine had been aware of it. Mr. Duffy repeated those accusations on Thursday before the House panel, saying “in our opinion, someone has violated the law here,” though he did not specify Mr. Corzine.

Mr. Corzine however, challenged Mr. Duffy’s assertion that he had been aware of the loans using customer money.

“I don’t know the source of the suggestion,” Mr. Corzine said, adding that he had first learned of the shortfall in customer funds late on Sunday, Oct. 30.

Mr. Duffy said only that a CME auditor had learned of the accusation in a conference call with “senior MF Global employees.”

But Representative Randy Neugebauer, a Republican from Texas and chairman of the House panel, said on Thursday that the unnamed executive was the chief financial officer of MF Global’s North American operations.

“Let’s be clear Mr. Corzine, this individual is a senior employee of your firm — a person you interact with regularly,” the congressman said. “Were you aware of loans made from customer accounts?

“As I have repeatedly stated, I was stunned on Sunday night,” Mr. Corzine said, referring to a conversation about 11 p.m. on Oct. 30, when he said he learned that the firm was missing about $1 billion in customer money.

Yet other MF Global executives were aware of the shortfall about five hours earlier, according to documents that CME submitted to lawmakers on Thursday.

About 6 p.m. that day, the firm’s general counsel notified CME that there was an apparent shortfall. But the counsel, Laurie Ferber, blamed an accounting error, according to CME.

At about 10 p.m., MF Global still held that the shortfall must be an accounting error, telling CME that the amount of money in question was “too big to be anything else.” Around midnight, Ms. Ferber sent an e-mail to CME saying “we may have it.”

But by 2 a.m., those hopes were dashed.

Mr. Neugebauer, citing information from CME, described an early morning meeting that day, when two MF Global executives told a CME official at the firm’s offices that as much as $700 million in customer funds had been transferred for the purposes of the firm. Such a move would have been intended to meet MF Global’s liquidity needs.

“If true, this is the first acknowledgment from officers of your firm that customer segregated accounts were in fact raided,” the committee chairman said.

But Mr. Corzine, who was not present at the time, appeared unfamiliar with that particular meeting.

“I’m aware of a phone call with regulators on the 31st,” he said. “I am not aware that we used the terms that you used.”

Much of the remainder of the marathon hearing, which lasted more than five hours, centered on the missing money and who was to blame for MF Global’s collapse. House members took turns posing harsh, sometimes-arcane questions to Mr. Corzine and Bradley Abelow, the firm’s chief operating officer. In response, the men responded with variations of “I don’t know.”

The dispute often got testy, as Republican lawmakers grew impatient with Mr. Corzine.

At one point, Representative Steve Pearce, Republican of New Mexico, wondered aloud what it would take for staff members at MF Global to bring information to Mr. Corzine.

“When do they have to come to you?” he asked. “Your day-to-day knowledge is not very thorough.”

Another congressman asked about a document issued by the company on Nov. 7, a week after its bankruptcy, suggesting there were no fund imbalances at MF Global.

Mr. Corzine indicated that following the bankruptcy and his resignation, he was no longer privy to such information.

Clearly miffed, the congressman muttered “slippery when dry” before ceding the floor.

Ben Protess reported from Washington and Azam Ahmed from New York.

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DealBook: MF Global Trustee Says Shortfall Could Exceed $1.2 Billion

Jon S. Corzine on the trading floor of MF Global last year.David Goldman for The New York TimesJon S. Corzine on the trading floor of MF Global last year.

12:55 p.m. | Updated

The court-appointed trustee overseeing the liquidation of MF Global’s brokerage now estimates that the shortfall in the firm’s customer funds could be more than $1.2 billion, double previous estimates.

Regulators currently suspect that MF Global improperly used customer money for its own purposes in the days before filing for Chapter 11 protection, according to people briefed on the matter.

The decision to release the updated figure on Monday came after authorities concluded that much of the customer money had left the firm, these people said.

By MF Global’s estimates to regulators, roughly $600 million in customer money was missing. But as forensic accountants pored over MF Global’s books in recent weeks, they began to question those estimates.

By Sunday, the accountants from Deloitte and Ernst Young had discovered an even larger gap in customer funds.

The trustee, James W. Giddens, held a four-hour conference call on Sunday evening with staffers in New York City and Chicago before deciding to publicly reveal the new number, according to a spokesman, Kent Jarrell. Officials from the Commodity Futures Trading Commission and the CME Group, MF Global’s primary exchange, were consulted on Sunday night.

It is unclear what is behind MF Global’s prior, substantially lower estimates. The matter is being investigated by Mr. Giddens and a collection of federal authorities, including the Justice Department.

Authorities are still searching for the money, and are considering two possibilities. One is that MF Global used the money to meet trading partners’ demands for extra cash, which could come back. The other is that it was used to cover trading losses, which would be unrecoverable.

A spokeswoman for MF Global declined to comment.

Separately, Mr. Giddens’s office said it had already distributed about $1.5 billion in customer funds meant to support trading positions, and that $520 million in additional cash would soon be paid out.

The trustee’s office still controls about $1.6 billion in customer funds, most of which could be distributed early next month.

Beyond the shortfall in customer accounts, Mr. Giddens’s office said it did not have access to money that was held in foreign subsidiaries of MF Global, which are under the control of bankruptcy trustees in those countries.

“While the trustee will pursue them vigorously, it has been his experience that recovery of these foreign assets may take more time,” the office said.

MF Global trustee’s statement

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DealBook: Fed Suspends Business with MF Global

7:51 a.m. | Updated Shares in MF Global Holdings were halted for trading early on Monday, as the brokerage prepared to file for bankruptcy protection and sell some of its assets to the Interactive Brokers Group, according to people briefed on the matter.

The Federal Reserve Bank of New York said in a statement that it had suspended doing any business with MF Global until the firm “is fully capable of discharging the responsibilities set out in the New York Fed’s policy.”

MF Global is a primary dealer, meaning that it is one of 22 firms allowed to trade directly with the Fed and make a market in securities like Treasury notes.

Original article: Jon S. Corzine, whose political ambitions came to a halt nearly two years ago when he was defeated for re-election as governor of New Jersey, is running out of time to prevent his revived Wall Street career from collapsing in failure.

His firm, MF Global — a powerhouse in the world of commodities and derivatives trading but little known outside Wall Street — was working frantically toward a potential sale late on Sunday.

Those discussions, which narrowed to one bidder, Interactive Brokers, came after investors — worried that MF Global was too vulnerable to the fallout from Europe’s debt crisis — deserted the firm, making it the first American financial institution to fall victim to those sovereign debt woes.

If the firm is unable to sell itself, other options, including bankruptcy, await. MF Global has hired restructuring and bankruptcy law firms including Skadden, Arps, Slate, Meagher Flom, said people briefed on the matter but unauthorized to speak publicly. One option is for MF Global to follow a precedent set by Lehman Brothers in 2008 by seeking bankruptcy protection for the parent company while selling some assets to Interactive Brokers.

Other Wall Street firms have not been spared damage from the European debt crisis. Shares at firms as large as Morgan Stanley fell this month over concerns that they were exposed to Europe’s troubles. And investment banks and brokerage firms are still licking their wounds from market volatility that has hurt trading operations.

MF Global began buying the debt of European countries like Italy, Portugal, Spain and Ireland last year, in a bet that the discounted prices of those bonds would soon recover. The gamble, though, went sour, and MF Global was hard hit as Greece’s troubled economy spread woes across the Continent. Although European leaders appeared to make progress last week toward resolving those problems, and other firms rebounded, MF Global continued to suffer.

The last-ditch rescue effort is a major blow to the reputation of Mr. Corzine, 64, who formerly co-led Goldman Sachs and was also a United States senator. With a sale of MF Global, Mr. Corzine’s role at the firm will almost certainly end, though he is expected to receive a severance payment of nearly $12.1 million.

Still, the departure will be bitter for Mr. Corzine, whose first stint on Wall Street ended with his ouster from Goldman Sachs. Along with Henry M. Paulson, another Goldman co-chief executive, who would later become Treasury secretary, Mr. Corzine, a former trader, led the firm through the Asian financial crisis of 1998. But trading losses in the last quarter of that year, on top of ill will within the firm over the decision to go public, led to Mr. Corzine’s exit in January 1999.

He revived his career with a successful run for the Senate from New Jersey in 2000, and left the Senate in 2005 to run for governor of New Jersey. A weak economy and a corruption scandal helped Christopher J. Christie defeat him for re-election in 2009.

Mr. Corzine’s arrival at MF Global in March 2010 was meant to be a triumphant return to Wall Street and to bond trading after a long absence. Though it is has operations worldwide, MF Global has just 2,800 employees, making it a fraction of the size of Goldman or Lehman.

Throughout the weekend, regulators focused on completing a deal that would sell at least a portion of the firm, a move that would avert a messy bankruptcy. But given its relatively small size, the firm is unlikely to send shock waves through the financial system.

Most of MF Global’s business involves executing and clearing trades in commodities and derivatives for clients like hedge funds. When Mr. Corzine joined, he sought to transform it into a full-fledged investment bank, in part by making riskier trades using the firm’s own capital.

A large part of that strategy backfired, as analysts and regulators worried about $6.3 billion in bonds issued by Italy, Spain, Belgium, Ireland and Portugal. By contrast, the much larger Morgan Stanley disclosed this month that it had just a $2.1 billion exposure to Europe.

Regulators were less confident in MF Global’s wager, asking it in August to raise the amount of money backing its bonds. The firm complied, though it argued that the bonds were trading at a few cents below par value.

Analysts appeared unimpressed. Late last Monday, Moody’s Investors Service downgraded the firm’s credit rating, citing both weak financial performance and its European bond holdings. The next day, the firm reported a $186 million loss, its fourth loss in six quarters.

Two days later, both Moody’s and another major agency, Fitch Ratings, downgraded MF Global to junk status. Such a move is disastrous for a financial firm, since it limits the number of trading parties willing to do business and raises borrowing costs.

Just as important, it can also scare customers, especially after the toppling of bigger firms during the financial crisis, like Bear Stearns and Lehman.

As of Friday, only a small percentage of customer money had flowed out MF Global’s door, according to a person briefed on the matter.

By the end of last week and through the weekend, Mr. Corzine and his advisers at Evercore Partners had called seemingly every major Wall Street firm, offering to sell MF Global, or at least some of its businesses or trading positions. While the firm had held talks with another potential buyer, Jefferies Company, by Sunday evening Interactive Brokers appeared to be in pole position.

Founded in 1977 by its chief executive, Thomas Peterffy, Interactive Brokers is a discount brokerage firm that places trades for customers on 90 exchanges.

The two firms share a deal history of sorts. In 2005, both competed for assets of Refco, which had filed for bankruptcy. MF Global emerged the victor with a $323 million bid.

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