The spectacular bankruptcy of MF Global this week has led to speculation about what led to the brokerage firm’s downfall.

Some of the problems appear to stem from the risky accounting maneuvers used to cover up the firm’s heavy bets of about $6.3 billion on European sovereign debt. After former Goldman Sachs chief and New Jersey Governor and U.S. Senator Jon Corzine took over the commodities and derivatives brokerage firm last year as chairman and CEO, the firm decided to shift its strategy to buying discounted debt from troubled countries in the eurozone, gambling that they would not default. It essentially bet that the European Union would come to the rescue and shore up the sovereign debt of members like Italy and Spain.

Perhaps so, but unfortunately, the firm may have used money from its customers’ accounts to back up those bets, and could not account for a discrepancy of over $600 million in its books when it tried to sell itself over the weekend. After downgrades from ratings agencies last week to junk status, the firm slid into bankruptcy Monday.

The firm appears to have been highly leveraged, with liabilities of $44.4 billion in June and equity of just $1.4 billion, according to The New York Times, a debt-to-equity ratio of about 40-to-1. Warnings from the Financial Industry Regulatory Authority to shore up its capital did little good. Reforms like the so-called Volcker Rule in last year’s financial reform law also did little to discourage the firm from doing proprietary trading on its own behalf, perhaps commingling customer money with its own accounts.

But also lying behind the company’s troubles were some accounting gimmicks that allowed the company to shift some of its risky bets off its balance sheet. Incredibly, like Lehman Brothers with its infamous "Repo 105" transactions, MF Global used a form of repurchase gimmickry to try to make its financial performance look better. In MF Global’s case, the firm used a technique it called “repo-to-maturity,” using the sovereign debt bonds of troubled European countries as the collateral for the loans it took out, while earning money from the spread between the rate on the bonds and the rate it paid to the counterparty on the financing, according to filings cited by Reuters. The bonds would mature the day the loans did. If the gains were recognized right away, MF Global could paper over the firm’s genuine financial problems, at least until FINRA began to demand that the firm modify its capital treatment of its European sovereign debt portfolio.

There is sure to be much more to come out in the days ahead about MF Global’s problems and maneuvers, as regulators probe the cause behind the firm’s collapse and Corzine struggles to pick up the pieces after his risky bets came up empty.

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