No. Or at least, probably not.

To start with, this is really illegal. There are no "loopholes" that allow you cover your losses with client funds. There is only the fact that it's actually pretty difficult to catch embezzling, even if you're looking really hard. As I understand it, despite fairly tight internal controls and obvious incentives to prevent it, banks suffer quite a lot of embezzling every year, and hush much of it up rather than suffer the bad publicity.

The problem is that the embezzler knows where to look, and you don't. There are all sorts of ways to remove money from an account so that it will look fine to an auditor. (A favorite, especially with bookkeepers, is simply writing a check to a shell company). Eventually, of course, something won't add up--the client will realize their statement is off, corporate accounts will run dry, or in some other way, reality will expose the fraud. As accountants like to say, "recessions uncover what auditors can't." Hello, Enron.

But the thieves always have a head start--which means that for a while, they'll usually get away with it. Reality is tireless, and eventually she almost always catches up with her quarry. But she is not necessarily speedy, and the denouement may be a long time coming. Even seemingly stupid embezzling schemes frequently go on for years.

I doubt that, um, whatever did happen at MF Global, has been going on that long, however. Not if a potential buyer could catch it in a weekend. Which is another problem: regulators can't scrutinize the books on a daily basis--companies don't even reconcile over such short time frames. So a desperate firm has a little window in which they can divert funds to cover their own emergency.

A friend and former CPA once observed to me that what people who are not auditors think happens in an audit is very different from what auditors actually do. What people seem to think happens (or should) is that every transaction is checked, scrutinized, and reconciled to the books. But as she pointed out, this would require a mirror organization at least as large as the client's finance and accounting departments. This would be obviously unworkable, and incredibly expensive.

What auditors actually do is look for red flags, and perform spot checks. In this case, the red flags were apparently pretty large and, um, red. But if they're not, the auditors may miss them.

In other words, no amount of "strengthening regulation" could have prevented MF Global from misplacing those funds. If it's a harmless bookkeeping error, then it's not worth spending much more regulatory energy on--I mean, absolutely, punish those who make such mistakes pour encourager les autres, but don't plow more limited resources into looking over the shoulder of the bookkeepers.

More here:

Late last year MF Global—the failed investment firm headed by Democratic heavyweight Jon S. Corzine that can’t account for as much as $900 million of its clients’ money–urged a federal agency to allow futures firms to invest funds from their customer segregated accounts in foreign sovereign debt. . . . Corzine, a former Goldman Sachs CEO, spent $62 million of his own money to win election to the U.S. Senate from New Jersey. He resigned his seat to run for governor of New Jersey in 2005. In 2009, he lost his reelection bid to Republican Chris Christie, and became CEO of MF Global in 2010. While he is not registered as a lobbyist for the firm, the federal agency meeting logs show he personally was active in pressing the company’s interests before agencies.