What led to MF Global downfall

MF Global collapsed after investors abandoned it following revelations of heavy bets it made on European debt. In the report, Giddens said those bets peaked at $7 billion last October. Corzine, a former New Jersey governor and one-time CEO of Goldman Sachs Group, resigned soon afterward, and he and other current and former MF officials have been sued by customer groups over their role in the collapse. Any legal action supported by Giddens could add weight to those claims.

Giddens had earlier said he was considering claims against certain executives but did not name them. Monday's report identifies Corzine, as well as former Chief Financial Officer Henri Steenkamp and former Assistant Treasurer Edith O'Brien, as possible targets for civil claims.

A spokesman for Corzine had no immediate comment. Lawyers for Steenkamp and O'Brien were not immediately available. Whether Giddens pursues MF executives may depend on their ability to pay any legal judgments and if they have insurance. Giddens said he was talking to insurers that may have issued such policies.

Executives are protected by around $375 million of various policies, lawyers for MF Global have said. Some customer groups have argued that insurance money should go directly to them, a position that is on appeal after being rejected by Bankruptcy Judge Martin Glenn.

Giddens said his report drew no conclusions about possible criminal liability. The Commodity Futures Trading Commission, the Securities and Exchange Commission, and the FBI are investigating the company's downfall. The report also offered recommendations on how to avoid a repeat of the chaos that followed the brokerage's collapse.

In his report, Giddens painted MF Global as a company woefully unprepared for its own growth. He said liquidity at the company had long been a concern but became an even greater issue when Corzine came on board in March 2010. Corzine's vision of MF Global as a global investment bank required the company to maintain higher liquidity levels, Giddens wrote. But Corzine and his team vastly underestimated just how big an increase it would need, Giddens said.

MF Global management "failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity," Giddens said. Giddens concluded that "management's actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business."

The report described how MF Global employees were unable to adequately monitor liquidity levels in real time. When the company began to teeter last fall and counterparties unwound positions, the firm became overwhelmed by what one executive called a "liquidity asphyxiation," according to the report. Giddens chronicled one email exchange between then-Assistant Treasurer O'Brien and a fellow employee, in which O'Brien reacted with shock to a remark by CFO Steenkamp that the company had plenty of cash. " wanted to say 'Really, then why is it I need to spend hours every day shuffling cash and loans from entity to entity?'" O'Brien said, according to the report.

To make up for the drain on liquidity, MF Global used customer money that was supposed to be segregated from the company's own funds. Dipping into customer accounts is not inherently prohibited, but brokers must ensure that customer pools have a surplus before using the funds for corporate transactions. Disagreements and confusion mounted within MF over whether there was an available surplus in customer funds to plug the liquidity gap, the report said.

The report described how by close of business on Monday, October 24, O'Brien approved $250 million of intraday transfers from customer accounts, even though the excess cushion in the customer account was less than $55 million. Those funds were repaid the same day. But two days later, the report recounted, O'Brien authorized some $615 million of intraday transfers from her office in Chicago and then panicked as the New York office failed to return the funds. She emailed several operations executives in New York that evening, the report said, wanting "to know how much is being returned - from where to where." She sent another email one minute later, stating, "I NEED TO KNOW NOW - TO PRE-ADVISE FUNDING AND AVOID A SEG ISSUE," according to the report. By close-of-business that Friday, the firm was missing some $952 million of the segregated funds.