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MF Global Allegedly Used Accounting Tricks To Comply With Capital Requirements

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Former MF Global CEO Jon Corzine.
Former MF Global CEO Jon Corzine.

Ends up MF Global officials used creative accounting tricks to give the appearance of complying with regulations in the lead up to the firm's collapse.

Instead of raising extra money to increase the firm's capital cushion as requested by regulators, MF Global moved some of its European debt holdings to a separate, unregulated entity, according to a report from the firm's bankruptcy trustee, Louis Freeh, cited by The New York Times. MF Global had maintained in the past that it met all capital requirements, but didn't disclose that it did so by moving some of its risky debt instead of raising extra cash.

MF Global filed for bankruptcy in October after risky bets on European debt went sour. The firm lost more than $1 billion in customer money, which is still in the process of being recovered. The trustee has subsequently said the firm may face more than $3 billion worth of claims, according to Bloomberg.

Multiple additional incidents have raised questions about the solidity of the firm's capital cushion. Three days before MF Global filed for bankruptcy, the firm assured the CME Group, a trading exchange operator, that it had a $200 million capital cushion it was using to keep customer funds separate from the company's money, the Wall Street Journal reports.

In addition, MF Global employees allegedly raised red flags about the way the firm was using customer funds before the it collapsed, according to investigators' interviews with former MF Global workers cited by a separate NYT report.

Jon Corzine, MF Global's former CEO, may face legal claims over the way he and other executives ran the firm in the lead up to its collapse. James Giddens, the court-appointed trustee in charge of recovering customers' money, wrote in a report released earlier this week that he would decide within 60 days whether he was going to use litigation to get back clients' money, according to the NYT.

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