The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court order against Jon Corzine, former CEO of commodity brokerage MF Global Inc., that requires him to pay $5 million for his role in MF Global’s collapse. This action resolves the major pieces of litigation over the failed brokerage.
The 70-year-old former New Jersey governor and senator was CEO of MF Global from 2010 to 2011. He was charged by the CFTC in connection with MF Global’s bankruptcy in 2011. The penalty will be paid in relation to Corzine’s role in the brokerage’s unlawful use of customer funds totaling nearly $1 billion and for Corzine’s failure to diligently supervise the handling of customer funds.
The order also says Corzine “cannot seek or accept, directly or indirectly, reimbursement or indemnification from any insurance policy with regard to the penalty amount” and bars him from ever registering with the CFTC in any capacity.
Former assistant treasurer of MF Global, Edith O’Brien, also has been required to pay a $500,000 penalty for aiding and abetting MF Global’s violations and is prevented from associating with a futures commission merchant (FCM) or registering with the CFTC in any capacity for 18 months.
“This resolution demonstrates the importance that the commission attaches to customer protection, which has long been a hallmark of our mission,” said Aitan Goelman, the CFTC’s enforcement director.
Unlawful use of customer funds in 2011
In October 2011, MF Global unlawfully used nearly $1 billion of customer segregated funds to support its own proprietary operations and the operations of its affiliates and to pay broker-dealer securities customers and pay FCM customers for withdrawals of secured customer funds.
MF Global was found in violation of the Commodity Exchange Act (CEA) and CFTC regulations by:
- Failing to treat, deal with, and account for its FCM customers’ segregated funds as belonging to such customers
- Failing to account separately for, properly segregate, and treat its FCM customers’ segregated funds as belonging to such customers
- Commingling its FCM customers’ segregated funds with the funds of any other person
- Using its FCM customers’ segregated funds to fund the operations of MF Global and its affiliates, thereby using or permitting the use of the funds of one futures customer for the benefit of a person other than such futures customer
- Withdrawing from its FCM customer segregated funds beyond MF Global’s actual interest therein.
When the transfers occurred, Corzine controlled MF Global, which was experiencing a worsening liquidity crisis. Because of this control and by his conduct, Corzine is liable for MF Global’s violations. Furthermore, from at least August 2011 through October 31, 2011, Corzine failed to supervise diligently the activities of the officers, employees, and agents of MF Global in their handling of customer funds.
O’Brien, knowing that certain funds would be transferred from customer segregated accounts to MF Global’s proprietary accounts, directed, approved, and/or caused seven transfers of funds from customer segregated accounts to MF Global’s proprietary accounts totaling hundreds of millions of dollars – more than MF Global had in excess segregated funds as last reported to O’Brien – that caused and/or contributed to a deficiency in the customer segregated accounts. By this conduct, O’Brien aided and abetted MF Global’s segregation violations.
The CFTC previously settled charges against MF Global and its parent Holdings for their violations of the CEA and CFTC Regulations. MF Global was required to pay $1.2 billion in restitution to its customers, as well as a $100 million civil monetary penalty.
