WASHINGTON — MF Global Holdings argued in a December 2010 letter to regulators that futures brokers didn’t need tighter restrictions on how they invest client funds. Ten months later, as MF Global filed for bankruptcy, about $1.6 billion in customer accounts was missing.

Within weeks, U.S. derivatives regulators approved a measure, dubbed the “MF rule,” designed to limit the kinds of transactions firms could make using client funds. The rule had been on the regulatory backburner as lobbyists sought to stall or alter new curbs proposed after the 2008 financial crisis.

Along with JPMorgan Chase’s recent $2 billion loss, MF Global’s case demonstrates that an army of Washington lobbyists can sometimes succeed in rolling back or delaying U.S. rules and regulations to the detriment of investors and depositors, with rippling effects on the broader economy. Also, their actions can backfire on the businesses that hired them in the first place.

“This is a classic example of how industry claims to know better than the bothersome bureaucrats in Washington,” said Nancy Watzman, a consultant for the Sunlight Foundation, a Washington-based group that advocates open government records.

The group documented nine meetings between MF Global officials and staff from the Commodity Futures Trading Commission about the financial overhaul. The meetings focused on such topics as money market mutual funds and provisions for compiling information from various accounts, according to the foundation.

“The paper trail companies have left pleading their cases becomes an embarrassment,” Watzman said.

JPMorgan

JPMorgan’s loss follows lobbying by its chief executive, Jamie Dimon, to weaken the 2010 Dodd-Frank financial overhaul, which he has referred to as “Dodd Frankenstein.” Dimon’s criticism of regulatory efforts may come back to haunt him and the firm as lawmakers in Washington are pointing to the $2 billion loss as evidence that tougher regulation is needed.

Both examples illustrate former Federal Reserve Chairman Paul Volcker’s comment to reporters following a May 9 Senate hearing that there’s “no question” that lobbying from banks contributed to the complexity of the initial 298-page Dodd-Frank proposal, including many rules that have been delayed.

“I could give you stories all day about lobbyists making things more complicated because they may do it for reasons they want to disrupt the whole process,” Volcker said at the time.

JPMorgan spokeswoman Jennifer Zuccarelli declined to comment, referring to Dimon’s March 30 annual letter to shareholders in which he said he didn’t “disagree with the intent of the Volcker rule.” At the same time, he was critical of the financial regulatory overhaul.

“As a result of Dodd-Frank, we now have multiple regulatory agencies with overlapping rules and oversight responsibilities,” Dimon said in the letter. “We now have allowed regulation to become politicized, which we believe will likely lead to some bad outcomes.”

JPMorgan employs 12 lobbyists and spent $7.6 million on lobbying in 2011, according to the Center for Responsive Politics in Washington, which tracks spending on Lobbying.

Lobbying topics included patent reform and helping refinance Fannie Mae and Freddie Mac-held mortgages, according to the group. Commercial banks spent a combined $61.8 million in that period, employing 456 lobbyists, compared with the steel industry’s 107 lobbyists and the airline industry’s 198 paid representatives.

A change of heart

Jon Corzine, the former New Jersey governor and senator, was MF Global’s chairman and chief executive officer. Executive Vice President Laurie Ferber said in the Dec. 2, 2010, letter to the U.S. derivatives regulator that it would be “unnecessary” to block futures firms from investing funds from customer segregated accounts. The letter said such restrictions would “eliminate a liquid, secure, profitable and necessary category of investment.”

Gary Gensler, chairman of the Commodity Futures Trading Commission, delayed the rule after a lobbying push by MF Global and another firm, Newedge USA, saying the agency needed more time to assess the proposal. MF Global, the first Wall Street firm to fail since the Dodd-Frank Act became law in July 2010, filed for bankruptcy protection Oct. 31 after making wrong-way bets on European sovereign debt.

Corzine, who resigned on Nov. 4, later gave testimony that endorsed Gensler’s assessment that the new rule would help protect client funds held by futures firms. “At a time of stress, his arguments may be much stronger,” Corzine said Dec. 8 before the House Agriculture Committee.

Corzine said he was “more in support of” the CFTC’s recommendations for tighter controls. He said he thought “they should be modified a bit.”

Diana DeSocio, an MF Global spokeswoman, declined to comment.

Lobbying success

It was hardly the first time high-powered Washington lobbyists, who often are former lawmakers or government officials, succeeded in forestalling rules and regulations or helped broker a policy that backfired on their clients.

The Pharmaceutical Research and Manufacturers of America, the industry’s lobbying group, supported President Barack Obama’s health care proposal after the group’s then-Chief Executive Billy Tauzin negotiated agreements with the White House. The group agreed to $80 billion in discounts and rebates while some provisions it opposed were dropped from the legislation.

Since then John Castellani, PhRMA’s current chief executive, has said Obama’s proposals cutting billions of dollars from Medicare and Medicaid spending on drugs would hurt his groups. Taking more money from drug companies would result in lost jobs and fewer cures, Castellani said.

“I see our critics and their one-dimensional focus on costs, and I say: ‘How dare they?’” he said in a speech at the group’s annual meeting last month.

The pharmaceutical industry group has continued to lobby on the issue, spending $240 million in 2011 and registering more than 1,500 lobbyists, according to the Center for Responsive Politics.