Chicago grand jury probes MF Global's lost money

[February 29, 2012]  WASHINGTON (AP) -- A federal grand jury in Chicago is investigating how $1.6 billion disappeared as the securities brokerage MF Global spiraled into bankruptcy last fall, according to a regulatory filing.

Financial exchange operator CME Group Inc. said Tuesday in its annual report that it was subpoenaed by the grand jury for documents and witnesses related to MF Global, which was run by former New Jersey Gov. Jon Corzine.

The grand jury probe was not disclosed previously. It moves the case toward possible criminal prosecutions of MF Global executives accused of misusing customer money as MF Global teetered in October.

The $1.6 billion belonged to MF Global's clients. Officials say it apparently went to cover MF Global's short-term financial needs as investors and trading partners lost confidence in the firm, punishing its stock price and causing a severe cash shortage.

Client money is supposed to be held separately from corporate cash to protect investors in case a firm fails. MF Global's misuse of client money would violate a fundamental investor-protection for people who trade options and futures.

Corzine, who hired a criminal lawyer last fall, told Congress he did not know what happened to the money.

CME Group responded to a separate subpoena from the Commodity Futures Trading Commission, the filing said. The CFTC is the lead federal regulator investigating MF Global's collapse and can bring civil charges.

The grand jury and CFTC probe both have been underway since shortly after MF Global filed for bankruptcy protection on Oct. 31. The grand jury subpoena was issued on Nov. 1, which the CFTC subpoena was issued on Nov. 3, said CME Group spokesman Michael Shore.

CME Group owns the Chicago Mercantile Exchange and the New York Mercantile Exchange, where investments such as commodity futures are traded. It was one of several overseers responsible for auditing MF Global's books.

The system of industry regulators monitoring firms' finances and protecting customer accounts is "under scrutiny by the CFTC and Congress" as a result of MF Global's failure, the annual report said.

CME Group said the MF Global failure cost it $29.1 million in 2011. It also said trading volume was down in the fourth quarter in part because MF Global went under.

Civil lawsuits allege CME Group was partly responsible for losses related to MF Global. CME Group expects the cases to be consolidated in federal court in New York, and believes that it has "strong legal and factual defenses to the claims," the filing said.

A spokesman for the federal court in Chicago would not comment on the status of any grand jury probe.

[Associated Press; By DANIEL WAGNER]

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