Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm. The missing funds, which at one point amounted to $950mn and now are figured at around $700mn, are the reason Interactive Brokers backed out of a deal to buy parts of MF Global. Without that deal, MF Global was forced to file for bankruptcy. The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. As the firm sorted through its bankruptcy, the initial $950mn figure fell to less than $700mn by late Monday. Additional funds are expected to trickle in over the coming days. But the investigation, which is in its earliest stages, may uncover something more intentional and troubling. Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse. By Sunday night the bank had all but signed a deal with Interactive Brokers. The acquisition would have mirrored what Lehman Brothers did in 2008, when its parent filed for bankruptcy but Barclays of Britain bought some of its assets. But in the middle of the night, as Interactive Brokers investigated MF Global’s customer accounts, the potential buyer discovered a serious obstacle: some of the customer money was missing, according to people close to the discussions. The realization alarmed Interactive Brokers, which then abandoned the deal. For now, there is confusion surrounding the missing MF Global funds. It is likely, one person briefed on the matter said, that some of the money may be “stuck in the system” as banks holding the customer funds hesitated last week to send MF Global the money. But the firm has yet to produce evidence that all of the $600mn or $700mn outstanding is deposited with the banks. The CFTC and SEC are looking into whether the customer funds were misallocated. [NY Times, 11/1/11]