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"Repo-to-maturity" loophole used by MF Global targeted by U.S. accounting body

Jan 16 2013 Dena Aubin, Reuters

The group that sets U.S. accounting standards proposed tightening an accounting rule that brokerage MF Global used to obscure its exposure to risky European sovereign debt ahead of its bankruptcy filing in 2011. The change, proposed on Tuesday by the Financial Accounting Standards Board, would make it harder for a company to use a particular kind of repurchase agreement - a form of short-term borrowing - to move debt off its balance sheet. MF Global, which was led by former New Jersey Governor Jon Corzine, collapsed after investors and customers became rattled over the firm's $6.3 billion bet on European sovereign debt. The case became a political flash point as investigators in Congress and elsewhere tried to identify the source of an estimated $1.6 billion hole in customer trading accounts. MF Global used repo accounting to keep sovereign debt off its books, making the firm look less risky than it was. "What the FASB has proposed has significant potential

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