Most of the $1.2 billion reported missing from the failed brokerage MF Global has been traced to customer accounts and banks, people briefed on the matter told The Associated Press on Wednesday.
Brokerages are supposed to keep customer money separate from company money. That way, customers are protected if the brokerage fails.
But three people briefed on the investigations into MF Global's collapse said MF Global misused client money to repay other customers, business partners and banks who demanded cash as the firm teetered.
The people spoke on condition of anonymity because they were not authorized to discuss the investigations publicly.
They said details about where the money went are being kept under wraps because the publicity could hinder future prosecutions and efforts to return money to MF Global customers.
MF Global's demise, the eighth-biggest U.S. corporate bankruptcy, is the subject of investigations by the Commodity Futures Trading Commission, the firm's main regulator, and trustees trying to return money to MF Global customers and lenders, among others.
The status of the missing money was first reported late Tuesday by The New York Times.
MF Global's collapse grabbed headlines in part because it was headed by Jon Corzine, a former Democratic governor of New Jersey, U.S. senator and CEO of Goldman Sachs.
Corzine had taken charge of the sleepy brokerage in early 2010. He wanted to transform it into a full-scale investment bank, similar to Goldman. In congressional hearings in December, he denied knowing how the money disappeared.
"I simply do not know where the money is," he said more than a month after the company filed for bankruptcy protection Oct. 31.
The promise of separate accounts is considered a fundamental protection for people who trade futures and options, the investments that MF Global specialized in. It's the equivalent of federal deposit insurance for bank deposits.
Using client money to meet the company's other financial needs could violate civil securities laws and lead to criminal charges for those who authorized the transactions. Federal criminal-justice authorities have said that they are looking into the case.
MF Global failed after a massive bet on European sovereign debt spooked investors, rating agencies and its shareholders. Corzine bet about $6.3 billion on bonds issued by debt-saddled such as Italy and Spain.
As the bonds lost value, MF Global was forced to set aside additional cash as collateral. The money was meant to protect the lender in case the bonds crashed or MF Global went bust.
Meanwhile, credit rating agencies downgraded MF Global because it was preparing to announce a large quarterly loss.
The downgrades and news reports on the European bets caused investors to question MF Global's financial strength. Customers started pulling their money, and business partners demanded that it put up more cash collateral. Its stock price plunged.
MF Global executives tried to find a buyer willing to rescue the firm. But it was unable to explain why its books didn't add up, so the potential saviors abandoned the deal.
Upon learning of the missing cash, regulators forced MF Global to file for bankruptcy protection.
Current and former risk officers from MF Global are scheduled to testify Thursday before a subcommittee of the House Financial Services committee.
AP Business Writer Marcy Gordon contributed to this report.
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