Investigators said Monday that MF Global first misused customer money on Oct. 26, five days before filing for bankruptcy, shedding some new light on the extent of wrongdoing at the brokerage firm.
The statement, issued by the trustee tasked with returning money to customers, also revealed that investigators have traced most of the customer cash that vanished from MF Global.
While they are still tracking down the whereabouts of securities belonging to customers, the statement provides the first public glimpse into the three-month hunt for roughly $1.2 billion in missing money. The New York Times DealBook broke the news last week that investigators have traced nearly all the missing money.
Underpinning the misuse of customer money was a state of utter chaos at the firm, which was rushing to sell assets and unwind positions to stay afloat. The four-page statement from the trustee, James W. Giddens, outlined the flurry of transactions in the week before the bankruptcy — $105 billion of cash in and out of the firm and more than $100 billion of securities transactions.
“For three months our investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions,” Mr. Giddens said in the statement.
The onslaught was so intense that the “company’s computer systems and employees had difficulty keeping up with the unprecedented volume of transactions.”
Some transactions were recorded “erroneously or not at all,” according to the statement. In addition, transactions where either the buyer or seller failed to complete a trade, also known as fail transactions, happened five times more often than usual during that last week.
The revelations come as pressure mounts on Mr. Giddens to recover the assets of farmers, hedge funds and other MF Global clients. The statement, the most detailed correspondence yet from the trustee, sets up the next phase of the investigation: how to recover the money.
Mr. Giddens warned that it could be an uphill battle. Mr. Giddens has already indicated that the easy money has already been doled out. To claw back funds from banks and trading partners, Mr. Giddens may need to take legal action.
“These will be very complex legal and factual determinations, which we will make consistent with our duty as the advocate for the former customers of MF Global Inc.”