The trustee liquidating bankrupt broker MF Global on Thursday deflected intensifying pressure to disperse billions of dollars of customer cash frozen in commodity accounts, saying that he could not yet legally release individuals' funds.

As traders, exchanges and lawyers sought to untangle accounts, the U.S. futures regulator confirmed it had begun a probe into the collapse of the brokerage once run by Jon Corzine, a Wall Street legend and former New Jersey governor whose bad bets on European debt triggered a crisis of confidence in one of the most active commodity brokers in the world.

The Commodity Futures Trading Commission investigation followed the discovery that some $600 million was missing from segregated accounts, customer funds that are meant to be untouchable and held separate from the broker's own money.

The search for those funds has delayed and complicated the process of returning funds on account to MF Global's customers, whose cash has been frozen for almost two weeks. While clients with open trading positions were transferred to new brokers, those holding only cash have not seen any funds.

On Thursday, James Giddens, the trustee liquidating the brokerage, said he was not able to authorize the transfer of individual accounts until all claims had been made.

While we have received many requests for individual transfers, we must treat all customers equally and fairly and do not have authority to make such transfers, Giddens said.

We need to determine the amount of all claims before any distribution may be made. We are developing an expedited claims process to accelerate this process and to enable us to make additional distributions as soon as possible, he said.

Any further shortfall will force customers to join the bankruptcy queue as unsecured creditors, he wrote.

That will infuriate commodity traders who argue that, since only about 12 percent of the estimated $5.5 billion in segregated funds is missing, the court should be able to release another tranche. They estimate that just over half has been dispersed in the form of collateral on open trades.

On Thursday the IntercontinentalExchange, the second-largest commodity market in the world, took up their cause, publicly calling for the bankruptcy court to act.

In an assertive letter to Manhattan bankruptcy Judge Martin Glenn, ICE warned of the systemic implications and moral hazard of rewarding customers who had held onto their positions -- and are now trading with new brokers -- while penalizing those who acted quickly and responsibly to reduce their exposure.

We therefore urge the Court to immediately permit the release of as much of the cash balance as possible that remains in the accounts of these liquidating and transferring customers at MF Global, ICE Futures US President Thomas Farley and ICE Clear U.S. President Thomas Hammond wrote in the letter.


The CFTC, which normally does not publicly confirm such probes, said it was in the public interest to announce that its enforcement division began an investigation on October 31. The agency does not intend to provide further updates.

This isn't just a lost and found inquiry; it's a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy, Bart Chilton, a Democratic commissioner, told Reuters.

The CFTC also said Jill Sommers, a Republican commissioner, would take the lead on matters related to MF Global. She replaces Chairman Gary Gensler who has recused himself from the investigation.


Giddens set up a bulk transfer of about 17,000 commodities accounts earlier this month, including much of the collateral required to back those trades.

But the court has denied claims by former clients to return cash trapped in their accounts, leaving them with no trading account and no cash to fund new positions.

Angry customers have warned that traders, brokers and smaller hedge funds risk going out of business if they cannot access their money. Unlike retail banks or in equities, no government agency stands behind commodity accounts or trades.

James Koutoulas, chief executive of Typhon Capital Management in Chicago, has gathered a loose coalition of around 1,200 MF Global customers who are also frozen out of their cash. As much as $55 million of his firm's money is inaccessible.

Being tied up for even an hour is an eternity in these markets. It's now been more than a week, said Koutoulas, who is also a securities lawyer.

We are petitioning the court for the release of 85 percent of the funds and to either remove the trustee or move him to a flat fee so he's motivated to get this resolved as quickly as possible, said Koutoulas.

It is unclear just how much cash is still frozen in MF Global's segregated customer accounts, which the CME Group estimated had a requirement of some $5.5 billion when it filed for bankruptcy on October 31. Regulators have said some 11 percent of that, or more than $600 million, is missing.

The CME Group has confirmed that about $1.5 billion of the $2.5 billion in CME-related segregated trading accounts at MF Global had been transferred out with those open trades, in theory leaving about $1 billion. ICE said on Thursday that half the deposits held for ICE Clear had been transferred, but it did not give any figures for total or frozen funds.

The bankruptcy case is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.

The brokerage liquidation is In re MF Global Inc, in the same court, No. 11-2790.

(Reporting by Nick Brown; additional reporting by David Sheppard; Editing by Lisa Von Ahn, Jonathan Leff and Jim Marshall)