As MF Global Holdings Ltd. teetered last October, an accountant in its Chicago office got an urgent question from regulators: How much cash did the firm have left?It is supposed to be an easy question for brokerage firms to answer, even in the middle of a crisis. U.S. rules set tight controls on the accounting, oversight and movement of money that belongs to customers or firms themselves.
"This will require a significant effort," the MF Global accountant, Matthew Hughey, wrote in an email to seven colleagues at 4:24 a.m. on Oct. 27, 2011. A copy of the email was reviewed by The Wall Street Journal.
The reason Mr. Hughey couldn't answer the question for regulators: Employees at MF Global couldn't keep track of exactly how much money it had at any given moment, even before the company began to wobble, according to Mr. Hughey's email. Officials had been trying to fix the problem for months.
As regulators and lawmakers plow ahead with investigations that began when MF Global tumbled into bankruptcy a year ago this week, yawning gaps in the New York company's procedures for moving and keeping track of money are getting new attention.
A private lawsuit expected to be updated early next month is expected to highlight such issues and how they are tied to the more than $1 billion that went missing from customer accounts as MF Global failed last October, according to people involved in the suit.
A House financial services committee report, which will be released in the next few weeks, is expected to scrutinize how regulators handled MF Global.
It is unclear how much focus will be given to the deficiencies in internal computer systems and procedures at the firm.
The Commodity Futures Trading Commission and the Securities and Exchange Commission also are probing the company's inner workings. No decision has been made on whether to file civil charges against former MF Global executives or employees.
There are no signs that prosecutors are planning to bring criminal charges related to the firm's demise.
Jon S. Corzine and Henri J. Steenkamp, MF Global's chief executive and finance chief, respectively, have told lawmakers that they believed internal controls at the company were sound when they signed securities filings in 2011. Their signatures were required under the Sarbanes-Oxley corporate-governance law.
Mr. Corzine, a former Goldman Sachs Group Inc. GS -0.23% chairman, strongly backed the 2002 law while he was a Democratic U.S. senator from New Jersey. He has repeatedly denied any wrongdoing related to MF Global. A spokesman for Mr. Corzine declined to comment Sunday. Mr. Steenkamp's lawyer and Mr. Hughey couldn't be reached for comment. A lawyer for Mr. Hughey declined to comment.
A bankruptcy trustee said in a June report that MF Global's trouble keeping up-to-the-minute track of customer money partly reflected a loose organizational structure. For example, midlevel employees had wide leeway when handling requests from elsewhere in the company to move hundreds of millions of dollars at a time.
Internal documents reviewed by the Journal show that the problems were chronic and deeper than previously disclosed.
An April 2011 spreadsheet called "Outgoing Wire Approved Individuals" lists nearly three dozen back-office employees with authority to move money, sometimes with no limit on the size of the transfer as long as a higher-ranking official approved.
Two people working on the case said the number was unusually large for a brokerage firm of MF Global's size.
The spreadsheet also shows that MF Global set no "dollar threshold" on how much employees could move from accounts used to invest the firm's own money and certain customer funds. In contrast, only two employees were allowed to move more than $500,000 at a time out of an account used to pay commissions owed by MF Global. It isn't clear if the same procedures were in place when MF Global collapsed.
Some people close to the investigation or who worked at MF Global said the firm failed to shore up internal systems that officials knew were weak. One explanation offered by these people is that MF Global had to prioritize what needed to be fixed first, since it had limited resources and was still overhauling systems in response to a 2008 rogue-trading loss.
When the firm was spun off from Man Group EMG.LN -3.79% PLC in 2007, MF Global had only "skeletal resources" in risk management, technology and other back-office functions, according to a former employee involved in later efforts to modernize its systems.
That push sometimes was choked by bureaucracy. In one example in Hong Kong, when company officials were trying to update software, they had to write up a proposal and get at least 14 sign-offs from superiors, said the former employee.
After Mr. Corzine joined MF Global in March 2010, he and other executives launched a technology overhaul. Chief Operating Officer Bradley Abelow said after starting the job later in 2010 that needed fixes could take a decade, a person familiar with the conversation said.
This person said Mr. Corzine replied: "You have six quarters." People familiar with Mr. Corzine's thinking said he was referring to his time frame for turning around MF Global before rating firms might downgrade the company's debt.
An April 2010 report to the company's board from the internal audit department cited "dozens of gaps in policies, procedures and technology," according to a summary included by the bankruptcy trustee in his June report.
A follow-up to MF Global's board in October 2010 "continued to reflect many critical or high-risk gaps in risk policies," a summary said. It also was included in the June report by James Giddens.
Mr. Giddens's report said MF Global still used "ad hoc" tools to track cash as of early 2011 even though it was taking bigger risks, such as the bets by
Mr. Corzine on European sovereign debt that eventually sank the firm.