Exchange operator CME Group says MF Global broke rules on separating client, company money

WASHINGTON – MF Global, the securities firm led by Jon Corzine, broke rules requiring it to keep clients’ money and company funds in separate accounts, the head of the Chicago Mercantile exchange said Tuesday.

CME Group Inc. CEO Craig Donohue says MF Global Holdings Ltd. was “not in compliance” with requirements set by his company and the Commodity Futures Trading Commission, its key regulator.

“While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure,” Donohue said in a conference call about his company’s quarterly financial results.

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MF Global filed for bankruptcy protection on Monday, after a big bet on European debt threatened to topple it. Regulators said they have discovered shortfalls in some of the firm’s customer accounts.

Companies regulated by the CFTC must account for clients’ money and investments separately from money and investments belonging to the company.

Corzine, a former New Jersey governor and chief of Goldman Sachs, prompted MF Global to make more trades for the company’s own profits, a practice known as proprietary trading. He pushed for the $6.3 billion bet on debt issued by Italy, Spain and other European nations with troubled economies that ultimately doomed the company.

The CFTC said in September that MF Global was overvaluing some of its European debt investments. It required the company to raise more cash, according to court papers filed on Monday.

MF Global reported its biggest ever quarterly loss last week, mainly because of losses on proprietary trading. Credit rating agencies downgraded the company’s bonds to junk status, and business partners demanded that it put up more cash to guarantee its trades. The result was a severe cash crunch that forced MF Global into bankruptcy court.

Debt from many European nations has lost value in recent months because bond investors fear one or more countries might default. Fears about MF Global’s possible losses spooked investors on Monday.