At 4:53 p.m. five days before MF Global Holdings Ltd. collapsed, an employee in its Chicago office asked a co-worker to move $165 million from one of the securities firm's bank accounts to another.
"Approved," came the response one minute later, according to an email reviewed by The Wall Street Journal and FINS. Within about 15 minutes, the money moved to an MF Global account at J.P. Morgan Chase & Co., internal documents show.
Within minutes, though, several MF Global employees realized there was a problem, according to people familiar with the matter. The cash actually had been transferred out of a customer-segregated account, not one of the company's own bank accounts, the documents show. The employees tried to reverse the $165 million transaction but failed.
The money is part of the estimated $1.6 billion missing from accounts of farmers, traders and other MF Global customers after the New York company filed for bankruptcy protection Oct. 31. Investigators are scrutinizing the paper trail, which hasn't been previously disclosed, as they try to determine what happened to customer money at MF Global.
Unsuccessful efforts by employees over three days to undo the transaction suggest that at least some of them were concerned the $165 million transfer was an error. Under federal rules, firms like MF Global can put their own money in customer-segregated accounts, in part to provide ease of trading for those customers. Dipping into a customer account is permitted under those rules as long as the customers' own funds aren't touched. The account held customer money and some of MF Global's own funds.
No Wrongdoing Charged
No one has been charged with wrongdoing, but futures-exchange operator CME Group Inc. has said that someone at MF Global illegally dipped into client funds during the securities firm's final days. CME, one of MF Global's regulators, said Tuesday that federal prosecutors in Chicago have convened a grand jury in the matter. Jon S. Corzine, MF Global's former chairman and chief executive, has denied telling anyone to misuse client funds.
FINS' Julie Steinberg talks about the $165 million transfer of customer funds during MF Global's waning days.
Meanwhile, regulators and industry groups are working on possible changes to rules aimed at preventing a shortfall in client money. On Wednesday, the Futures Industry Association called for more disclosure by securities firms on handling of customer money.
As the criminal and civil probe enters its fifth month, investigators have encountered a large number of transactions made by MF Global during its final days. U.S. prosecutors and regulators already have questioned at least one MF Global employee who approved the $165 million transfer, which came the same day that MF Global customer accounts first showed a shortfall.
Christy Vavra, a treasury-operations manager at MF Global, has been interviewed by investigators at agencies including the U.S. attorney's office in Chicago, Securities and Exchange Commission and Commodity Futures Trading Commission, said a person familiar with the matter. Ms. Vavra's lawyer declined to comment.
J.P. Morgan also has been questioned about the $165 million transfer, according to a person familiar with the matter. Four days before MF Global filed for bankruptcy protection, the company's brokerage unit borrowed the same amount using a secured credit facility led by J.P. Morgan. The loan was paid back the next day, this person said. It couldn't be determined if the loan and transfer were related.
Sign of Chaos
The transfer is a sign of the chaos inside MF Global as panic deepened over the securities firm's bets on bonds of some European countries. MF Global employees were besieged by margin calls and demands for additional collateral. In the case of the $165 million, the transfer of money from the customer account resulted from a quick flurry of emails, the documents show.
It isn't clear who ordered MF Global's back-office staff in Chicago to move $165 million to the bank account at J.P. Morgan. Midlevel finance officials usually couldn't move such funds without direction from more-senior officials.
An email reviewed by the Journal shows R. Jason Chenoweth, a supervisor in MF Global's treasury-investment division in Chicago, asked the team led by Ms. Vavra to "please wire" the money from the company's MF Global Finance USA unit to MF Global Securities Inc., another subsidiary. Both units handled the firm's own money.
Joseph Cranston, another MF Global employee in Chicago, approved the transfer at 4:54 p.m. Central time. And at 5:04 p.m., employee Sarah Howgate asked Ms. Vavra to give a final nod.
"Please move $165mm using rep code CHASEFIN," Ms. Howgate wrote in an email to MF Global's treasury-operations staff. "Rep code" was used as a shortcut to help the firm's electronic systems move money quickly. Ms. Vavra responded one minute later.
"Approved," she wrote in an email. A summary of the transaction shows an "incoming money transfer" to MF Global's account at J.P. Morgan.
Employees soon realized that the $165 million hadn't come from the MF Global Finance USA unit, according to people familiar with the situation. Some of those people believed an inaccurate "rep code," not "CHASEFIN," was entered into the computer, despite Ms. Howgate's instructions. The mistake meant that the money was moved from the customer-segregated account.
Some MF Global employees worked to get the money back from J.P. Morgan. On Oct. 28, treasury-operations official Sheila Lane entered a "cancellation request" into an electronic system linked to the bank.
"Please back value wire to 10/27/11," she wrote, according to a document reviewed by the Journal. "Back-value" requests are commonly used by financial firms when asking a trading partner to reverse a transfer made in error.
Ms. Lane told Edith O'Brien, an assistant treasurer at MF Global, about the request in an email. "Thank you," Ms. O'Brien replied.
Ms. O'Brien was one of MF Global's key Chicago employees when it came to moving funds, and she sometimes communicated with senior officials with the firm's headquarters in New York. Mr. Corzine, a former Goldman Sachs Group Inc. chairman, New Jersey governor and U.S. senator, told a congressional panel in December that she had assured him that a separate money transfer was proper.
J.P. Morgan received the Oct. 28 request to reverse the $165 million transfer, according to a person familiar with the situation. By then, though, the money was no longer in the MF Global bank account, this person said.
-Jacob Bunge contributed to this article.
Write to Julie Steinberg at Julie.Steinberg@dowjones.com