MF Global Fund Shortfall Began 5 Days Before Failure: Trustee

NEW YORK (TheStreet) -- James W. Giddens, the trustee handling the liquidation of MF Global(MFLGQ.PK), issued a preliminary report on Monday, saying the company first experienced a shortfall in customer funds on Oct. 26, five days before it filed for bankruptcy protection.

The report said that "investigators have now traced a majority of the cash transactions, totaling more than $105 billion, made in and out of MF Global Inc. in the last week before bankruptcy and are completing the process of tracing the remaining transactions" in a statement.

MF Global also executed more than $100 billion worth of securities transactions in its final week of operations, according to the report.

"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," Giddens said in a statement.

"With these preliminary investigative conclusions in hand, we will analyze where the property wired out of bank accounts established to hold segregated and secured property ultimately ended up. We will then determine whether there is a sound and legal basis for recoveries against third parties that will help make customers whole," he continued

The chaotic situation at MF Global, which was run by Jon Corzine at the time, is described in the report, which says the company started to use funds believed to be in excess of segregation requirements to fund other daily activities at the firm.

"In the past, such transfers were in amounts of less than $50 million, but as liquidity demands increased and could not be met from internal sources, much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day," the report said. "By Wednesday, October 26, as the result of increasing demands for funds or collateral throughout MF Global, funds did not return as anticipated."

The final week before the bankruptcy filing saw operations spiral out of control with transaction executed by MF Global reaching "unprecedented volumes."