Hundreds of millions of dollars of customer funds missing from MF Global is probably just gone.
A lawyer briefed on the progress of the investigation being undertaken by various government regulators tells me that investigators now believe MF Global used customer money to make trades, such as buying sovereign debt securities.
Earlier this week, there was hope the money would turn out to be held as collateral in an account with one of MF Global's creditors, such as JP Morgan Chase [JPM 30.62 
0.13 (+0.43%) 
] or Deutsche Bank [DB 36.57 0.54 (+1.5%) ] . But that does not now seem to be the case.
"What the investigation is focusing on now is who, if anyone, knew it was client money," the lawyer tells me.
MF Global used customer funds in a variety of ways, he says. In the futures business, MF Global was allowed to use "idle" cash in customer accounts to make investments on its own behalf. It would buy bonds and keep the coupon on them. The higher the coupon, the more profitable this was for the company.
The firm would also "borrow" from its clients accounts, posting collateral such as U.S. Treasurys. But as the New York Times has reported, the firm stopped backing the loans from customer accounts sometime in October. Basically, they just took the cash out.
If this is right, it is probably impossible to recover the missing funds.