Report: Missing Funds at MF Global 'Vaporized', May Never be Recovered

By Matt Egan Features FOXBusiness

A woman leaves the office complex where MF Global Holdings Ltd have an office on 52nd Street in midtown Manhattan October 29, 2011. Members of MF Global Holdings Ltd's board of directors were meeting on Saturday to discuss options for the sale of the ... brokerage, Bloomberg News reported. The talks were said to have begun in New York to discuss apparent offers from five potential buyers of the company. REUTERS/Andrew Kelly (UNITED STATES - Tags: BUSINESS) (Reuters)

Investigators searching for $1.2 billion in missing client funds at MF Global now believe a “significant amount” of the money may have “vaporized” during the brokerage’s final chaotic days, according to The Wall Street Journal.

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The report represents a further setback for the investors, hedge funds and farmers who held funds at New York-based MF Global, which filed for Chapter 11 on October 31 in one of the largest bankruptcies in U.S. history.

The regulators, investigators and court-appointed trustees overseeing the search for the estimated $1.2 billion in missing client funds increasingly believe much of the money may never be recovered, the Journal reported.

Officials believe certain MF Global employees used money from “customer segregated accounts” at the company to meet demands for collateral or to unfreeze assets at banks and counterparties, the paper said.

However, investigators are also weighing other theories, such as whether MF Global posted steep losses on investments that were made using client cash, the Journal reported.

Led by Jon Corzine, the former New Jersey governor and Goldman Sachs (GS) CEO, MF Global collapsed due to a run by customers and counterparties worried about the bank’s heavy bullish exposure to the near-toxic debt of eurozone nations like Italy and Spain.

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During the chaotic trading before the Chapter 11 filing, much of the money that came out of MF Global went to middlemen and banks.

Specifically, the Journal pointed to JPMorgan Chase (JPM) and trade-clearing partners like Depository Trust & Clearing Corp. and LCH.Clearnet Group. The paper said those companies have denied they knowingly accepted any of the missing MF Global money.