Building Chaos at MF Global

Key Chicago employees were away and a significant transaction was botched in the lead up to a deficit in MF Global Holdings Ltd.'s customer accounts, according to internal emails, documents and people familiar with the matter.

MF Global's Chicago office was charged with handling money movements, including customer funds, during MF Global's final days. But many key employees weren't in the office. Two of them, Christine Serwinski, the firm's North American finance chief, and Donna Stroder, the head of margins, were at a ballroom dancing competition in Las Vegas days before MF Global collapsed, said people familiar with the matter.

A representative for Serwinski declined to comment. Stroder couldn't be reached for comment.

Among the flurry of activity during that final week was a $165 million transaction that has drawn scrutiny from federal investigators trying to unravel what happened to an estimated $1.6 billion still missing from customer accounts. The Wall Street Journal and FINS report today that the $165 million transfer between two MF Global accounts may have been a result of an inaccurate code entered into the system when moving the funds, according to emails and interviews with people familiar with the matter.

The transfer reflects the swirling chaos that engulfed what had previously been a placid back-office operation in Chicago. During the final week before bankruptcy, other parts of MF Global demanded transfers for anywhere between $12 million and $175 million, according to emails reviewed by FINS and The Wall Street Journal.

On the morning of Sunday, Oct. 30, the day before MF Global's bankruptcy filing, Matthew Hughey, a MF Global controller, began asking about a deficit in customer accounts that he estimated at $952 million, people familiar with the matter said. Hughey, a former accountant with the Securities and Exchange Commission, couldn't be reached for comment.

Around 7 p.m., MF Global's assistant treasurer, Edith O'Brien, told regulators of a "potentially huge deficiency" in customer funds, according to documents from CME Group Inc., a large futures exchange and MF Global regulator. About seven hours later, O'Brien and Serwinski confirmed to CME that the deficiency was real.

O'Brien and others tried to fix the shortfall the following morning. At 7:31 a.m. Central time on Oct. 31, O'Brien sent an email to the fixed operations team. "PLEASE MOVE THIS COLLATERAL" to the customer segregated account, the email read, according to a copy reviewed by FINS and The Wall Street Journal. But it was too late. MF Global filed for bankruptcy protection that day.

Write to Julie.Steinberg at Julie.Steinberg@dowjones.com