The MF Global missing funds search for clients of the bankrupt brokerage firm has regulators from the CFTC,  SEC and even the FBI hunting. Until the missing money materializes, everyone's accounts are frozen, and at least one former regulatory professional has expressed suspicion that something untoward transpired. Clients might have to steel themselves for a long wait and the possibility of a loss of funds. "The fact that people today can't tell us where the $600 million went is not a good sign," Lynn Turner, a former SEC chief accountant, told Bloomberg TV. "It's starting to smell like" fraud, he said. "Bankruptcies of this magnitude inevitably create all sorts of issues," says Charles Elson, a specialist in corporate governance at the University of Delaware. Missing customer assets usually aren't one of them, though. "I think that's the scary part of the whole thing," he says. What regulators are looking into is whether MF Global used clients' money to fund its trades, which is prohibited by law. Determining that probably isn't going to be as black and white as regulators might like. "They may have been involved in an aggressive interpretation of the securities laws," says a securities lawyer who requested anonymity because he is not authorized to speak publicly about the proceedings. "They met the letter of the law — the question is whether they met the spirit of the law." It's a question as complicated as the company's records. CFTC commissioners, in published reports, have described the process of sifting through the company's finances as a "magical mystery tour" and the company's books as a "disaster." On Friday, the bankruptcy trustee overseeing the liquidation announced that nearly all 1,066 of the company's employees were losing their jobs, although as many as 200 could stay to oversee the dissolution of the company. MF Global says the disarray in its financials is due to hasty unwinding of positions as its massive bets on European sovereign debt began to collapse, but it has a long history of regulatory violations pertaining to risk and records management. Over roughly the past decade, MF Global was sanctioned half a dozen times and fined a total of $12 million, including a $10 million fine levied in 2009 for "significant supervision violations" that occurred during the five years prior, according to CFTC enforcement archives. One 2008 infraction alone cost $141 million in trading losses on wheat futures. "They're going to have to figure out what did people know and when did they know it," Elson says. MF Global had undergone a routine audit only days before its bankruptcy filing and nothing was found to be amiss. "Why was this not caught, and if it had been caught, what would have been the consequences?" he says. Elson points out that sorting out the fallout from the collapse of Lehman Bros. was a protracted process and says this could follow a similar timeline. A worst-case scenario would be customers losing what were supposed to be safe investments and triggering a crisis of confidence that spreads to other trading firms. "Any time there's a failure of this magnitude, there's a lot of things that come out," Elson says. "It's like lifting up a rock."  [msnbc 11/13/11]