* MF Global customer funds went through Harris Bank
* Chicago-area bank held segregated accounts
* Authorities beginning money search at Harris
By Matthew Goldstein, Lauren Tara LaCapra, David Henry and
Nov 8 The hunt for the missing $600 million in
customer money at MF Global Holdings Ltd may begin
with Harris Bank, a Chicago-based lender that often holds
client money for many large futures brokerage firms.
A Harris Bank branch office in downtown Chicago was the
main repository for money from many of MF Global's 150,000
customers, according to customers and representatives with
smaller investment firms that introduced clients to the New
Harris Bank, a division of the Bank of Montreal ,
is emerging as a starting point in the investigation by federal
authorities, who are trying to determine what happened to more
than $600 million in MF Global customer money that remains
unaccounted for eight days after the firm collapsed in
A person familiar with a preliminary investigation by the
Federal Bureau of Investigation says one of the things
authorities are looking into is what happened with the customer
money held in segregated accounts at Harris Bank.
A segregated account is a separate account used by brokers
to keep their customers' money separate from the firm's money.
A spokesman for Harris Bank says the bank is prohibited by
confidentiality laws from discussing the customer accounts.
Lawyers representing Harris Bank in the MF Global bankruptcy
did not return a phone call or email seeking comment.
Kent Jarrell, a spokesman for James Giddens, the New York
attorney approved by the bankruptcy court to oversee the
liquidation of MF Global, said: "the trustee is aware that some
MF Global Inc customer funds went through Harris Bank."
For years Harris Bank, in part because it is based in
Chicago, has provided support services to futures brokerages,
including serving as a custodian for segregated accounts.
In the futures trading business, customer money deposited
in a segregated account is not meant to be used by a broker as
collateral for trades made by other customers or the firm
One of the issues regulators and federal authorities are
trying to determine is whether the $600 million in missing
customer money was inappropriately diverted from segregated
CME Group Inc , one of MF Global's four regulators,
estimates that the firm has about $2.5 billion in customer
segregated funds on deposit with the exchange, according to a
Joseph Ocrant, a floor broker and commodity trading adviser
with Oak Investment Group in Chicago, said money in a
segregated account is not supposed to be moved without an
explicit direction from a customer.
"It is the holy grail of the futures industry and it is
never, ever, ever to be touched," said Ocrant.
Some MF Global customers who tried to pull money out in the
week leading up to the firm's bankruptcy filing received checks
that would draw on an account at Harris Bank. Some of those
customers received checks, even though they had put in a
request for MF Global to wire the money back to them.
Many of those checks were rejected for payment when the Jon
Corzine-led firm filed for bankruptcy on Oct. 31.
MF Global collapsed after a last-ditch deal to sell the
firm's brokerage business fell apart over the issue of the
missing customer money.
Late last week it appeared some of the missing money was
found in an account MF Global has with JPMorgan Chase ,
which provided back-office and cash management operations for
the now-failed firm. But it is not clear whether any of that
money constitutes the missing $600 million in customer money.
A JPMorgan spokesman was not immediately available for
Brokers with several small firms that introduced customers
to MF Global said they would regularly get paid commission from
an MF Global account at JPMorgan.
JPMorgan has marketed its services to futures commission
merchants, such as MF Global, for what it has called
"regulatory cash management," as permitted under Commodity
Futures Trading Commission Regulation 1.25.
The rule has become a focal point of debate over whether
the industry is adequately regulated. It permits customers'
excess margin, or collateral for futures trades, from
segregated accounts to be invested.
One marketing brochure from JPMorgan said, "Your full
account works for you and earns a hard dollar payment." The
bank said it was a leading provider of "cash-based
regulatory-driven account services."
The rule was important enough to MF Global that Corzine,
its former chief executive and former New Jersey governor,
lobbied to stop a proposal that would have revised the rule
with new limits on use of customer funds. The proposal has
since been stalled.