FBI Probes Beleaguered MF Global

The recent collapse of MF Global has attracted heightened interest and scrutiny by the Federal Bureau of Investigation.

(November 2, 2011) — MF Global — which has filed for Chapter 11 bankruptcy protection — is facing heightened scrutiny the by Federal Bureau of Investigation.

The FBI plans to look into whether customer money is missing at the firm, The Wall Street Journal has reported, noting that while the Commodity Futures Trading Commission has initiated its own probe, it has not yet launched a formal investigation.

Both the CFTC and Securities and Exchange Commission (SEC) said earlier this week that MF Global “reported possible deficiencies in customer futures segregated accounts held at the firm.”

Meanwhile, Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., has said that the collapse of MF Global may eat away at investor confidence. Investors may be “more concerned about the return of their money than the return on their money,” Gross said in San Francisco at a conference for investment advisers held by Charles Schwab Corp, according to Bloomberg. “Over a period of years Wall Street sort of lost its way,” Gross said. “We need a banking system that is attractively and conservatively capitalized.”

MF Global was forced to file for bankruptcy following failed efforts by former New Jersey Governor John Corzine, MF Global’s CEO and the former CEO of Goldman Sachs, to pinpoint a buyer for the beleaguered brokerage company. Corzine, who assumed the role of CEO of MF Global Holdings in March 2010, made large bets on sovereign bonds issued by European countries. He aimed to transform MF Global from a midsize derivatives broker to an investment bank. The trades jumped to over $6 billion and resulted in the lowering of MF Global’s own debt ratings to junk, consequently lowering investors’ confidence in the firm.

“Europe wouldn’t let these countries go down,” Corzine told another executive at the New York City company early this year, according to the WSJ. When the lower-ranking official suggested that the trade was too large, Corzine reportedly replied that his career on Wall Street and in politics made him stand by his bets.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742