MF Global Trustee Sheds New Light on Chaos at Firm MF Global first misused customer money on Oct. 26, five days before filing for bankruptcy, investigators said on Monday, shedding new light on the extent of potential wrongdoing at the brokerage firm and the chaos that prompted the breach. In a statement, the trustee tasked with returning money to customers also revealed that investigators had traced most of the customer cash that vanished from MF Global. That cash, belonging to futures customers, traveled to a wide variety of destinations, including banks, clearinghouses and the firm's own securities customers, according to people briefed on the situation. While the investigators are still tracking other assets like bonds that belonged to MF Global clients, the statement provides the first public glimpse into the three-month hunt for roughly $1.2 billion in missing money. The New York Times reported last week that investigators had traced a substantial portion of the missing money. Underpinning the misuse of customer money was a state of utter chaos as the firm rushed to sell assets and unwind positions to stay afloat, investigators said. A four-page statement from the trustee, James W. Giddens, outlined a flurry of transactions in the week before the bankruptcy - $105 billion of cash in and out of the firm and more than $100 billion of securities transactions. "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," Mr. Giddens said in the statement. When money first went missing on Oct. 26, MF Global was already teetering. Moody's Investors Service had cut MF Global's credit rating and the firm had delivered a dour earnings report, setting off a crisis of confidence among investors and regulators. Trading partners and clearinghouses began to demand more money from MF Global to maintain its accounts, and it paid more than $200 million to support trades in the debt of European nations. Money also went to the Depository Trust and Clearing Corporation, which cleared trades for MF Global. The traffic of trades was so intense that the "company's computer systems and employees had difficulty keeping up with the unprecedented volume," according to the trustee's statement, which added that some trades were recorded "erroneously or not at all." In addition, situations where either the buyer or seller failed to complete a trade, also known as "fail" transactions, happened five times more often than usual during that final week. From his statement, the trustee seems to indicate that the breach may have been accidental at first, the result of a complex web of transactions that obscured what MF Global had at its disposal. "Personnel may not have been immediately aware of it," the trustee said. Determining any wrongdoing will ultimately fall to government authorities. Federal prosecutors in Manhattan and Chicago and the Commodity Futures Trading Commission, the regulator leading the case, are exploring whether anyone at the firm knowingly used customer assets. MF Global submitted documents to regulators saying the money was secure on Oct. 26, buffered by $116 million in excess firm money. Now, the trustee says that calculation was "overstated." The extent to which the firm dipped into customer funds varied through Oct. 27, before it swelled to more than a billion dollars on Oct. 28, the trustee said, adding that the firm apparently assumed the money would be returned by the end of the day. It is unclear how - or even whether - the shortfall went undetected for five days. Regulators ordered MF Global to verify the safety of customer money - requests that went unmet that weekend. When the firm first acknowledged the discrepancy on Oct. 30, executives portrayed it as an accounting error. Pressure is mounting to recover the assets of farmers, hedge funds and other clients. Mr. Giddens's statement, the most detailed correspondence yet from the trustee, sets up the next phase of the investigation: how to recover the money. Mr. Giddens warned that it could be an uphill battle. The easy money has already been doled out. To claw back funds from banks and trading partners, some of which were owed money by MF Global, Mr. Giddens may need to take legal action. "These will be very complex legal and factual determinations, which we will make consistent with our duty as the advocate for the former customers of MF Global Inc.," he said in the statement. MF Global trustee's update MF Global trustee's presentation