Text size

MF Global (MF) admitted Tuesday to federal regulators that money had been diverted out of customer accounts, according to the WSJ.

The admissions came as investigators digged deeper into the failed futures brokerage's books after Interactive Brokers (IBKR) walked away from a potential acquisition of the company based on unanswered questions about hundreds of millions of dollars in missing money.

Federal authorities were reportedly trying to determine if MF Global's managers shifted funds around on a short-term basis to avoid bankruptcy.

"Reports of shortfalls of client money ... if true, would be a disaster for all the smaller brokers and banks as nobody will trust them anymore," one London trader told Reuters.

MF Global had $7.3 billion in customer assets on August 31, according Commodity Futures Trading Commission data.

Now, the company figures to be a prime example used by supporters of Paul Volcker's campaign against proprietary trading on Wall Street.

Just 19 months after Jon Corzine took the helm at MF Global, the firm yesterday filed for bankruptcy, seemingly caught by Europe's debt crisis and the ex-Goldman Sachs exec's desire to expand the firm's trading practices.

"In the wake of 2008, when we all should have learned a lesson, Jon Corzine told me himself that it was a relatively staid ... firm and he needed to ratchet up the risk," author William Cohan told Bloomberg. "Well, he does that and it blows up in his face and for the first time he can't unwind the trade. Honestly I'm still shocked and it should not have happened."