The problem was exacerbated by MF Global’s method of accounting for its European trades, according to the report. The so-called repurchase to maturity transactions allowed MF Global to immediately recognize income while removing the transactions from the company’s balance sheets, according to the report.

Under Corzine, MF Global’s position in such investments increased from $400 million in mid-September 2010 to $8.3 billion at the end of August 2011, according to the report.

‘Highly Leveraged’

The trades, which required a margin payment, “jeopardized the company’s available liquidity and left the company highly leveraged,” Freeh said in the report.

In the summer of 2011, former Chief Risk Officer Michael Stockman recommended that MF Global stop investing in the European debt and start hedging its exposure, according to the report. Management ignored the advice and searched for additional sources of liquidity to support the trading strategy, even debating how aggressively brokers could borrow on an intraday basis customer funds that were required to be kept in segregated accounts, Freeh said.

By the week leading up to its collapse, MF Global needed to rely on its Operations, Risk, and Treasury Department systems, which were fatally flawed, Freeh found. The failure of Corzine and other members of his management team, including Abelow and Steenkamp, to address the deficiencies contributed to the company’s demise, Freeh found.

‘Deficient Controls’

“In the end, the scale of the company’s trading put pressure on the company’s deficient controls without producing any significantly improved revenues,” Freeh said in the report.

Freeh estimates the losses to MF Global and its finance subsidiary from $1.5 billion to $2.1 billion. Giddens, the brokerage trustee, estimated a shortfall of $1.6 billion in customer funds.

The SEC didn’t include the CFTC in several meetings in 2011 about the brokerage’s capital and business strategy that would have been helpful for oversight, according to the Republicans’ report. The CFTC didn’t inform the SEC that the broker was using an alternative method of calculating customer funds, the report showed.