Last updated: November 4, 2011 6:51 pm

MF Global client funds turn up at JPMorgan

Accounts containing $659m belonging to customers of MF Global have turned up at JPMorgan Chase, the failed broker-dealer’s custody bank, according to a person familiar with the matter.

The disclosure raised hopes of explaining a shortfall in customer accounts that emerged after the broker-dealer filed for bankruptcy on Monday. The gap, $633m as of Tuesday, sparked investigations by federal authorities. On Friday, Jon Corzine, MF Global chief executive, resigned.

JPMorgan disclosed the funds to MF Global in a statement dated Monday, the person said. The statement revealed a total of $2.2bn – including MF Global’s own funds – held at JPMorgan, which also was listed as the largest unsecured creditor to its holding company.

JPMorgan said it keeps customer and house funds for MF Global, but declined to quantify them. “There’s no way for JPMorgan to know if this is the ‘missing money’,” a spokeswoman said.

The trustee managing the liquidation of MF Global’s brokerage said it would try to identify the location and nature of MF Global accounts held at JPMorgan.

The shortfall gave a second black eye to Mr Corzine, 64, after the former Goldman Sachs chief executive’s firm imploded due to concerns over a $6.3bn bet on European sovereign debt.

“I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,” he said in a statement. He joined the broker-dealer less than two years ago after losing a bid for re-election as New Jersey governor.

Regulators and bankruptcy lawyers are widening their investigation into MF Global’s collapse. On Friday, the bankruptcy trustee won approval to subpoena records from the company and share them with authorities. “In this case, there have already been serious allegations of potential misconduct,” Martin Glenn, US bankruptcy judge, said.

Mr Corzine, who has hired Andrew Levander, a white-collar defence lawyer, said he would help the company respond to regulatory inquiries and issues related to the disposition of firm assets. He would also forgo $12.1m in severance pay, MF Global said.

The MF shortfall has rekindled efforts to pass a rule, proposed last year, that would limit the scope of brokers’ investments of customer funds. “I’m calling it the MF rule,” Bart Chilton, a member of the US Commodity Futures Trading Commission, told the Financial Times. “I don’t think we should wait.”

Rival futures brokers were, meanwhile, receiving thousands of former MF Global customer accounts. CME Group, the exchange operator overseeing the bulk of the transfers, said late on Friday that it expected to have moved 15,000 customer accounts and about $1.45bn of collateral to other clearing firms. Some collateral will be left behind, however, raising fears that traders will be forced to add margin or unwind positions when futures markets reopen next week.

MF Global suffered a string of credit downgrades last week to “junk” after rating agencies decided the broker had taken on too much risk with European sovereign debt.

“Corzine was getting back ‘in the game’ – a game he clearly loved. The liquidation of a company was not what he volunteered for,” said Brad Hintz, senior analyst at AllianceBernstein.

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