The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court Consent Order against Defendant Jon S. Corzine (Corzine Order), former CEO of MF Global Inc., requiring him to pay a $5 million civil monetary penalty for his role in MF Global’s unlawful use of customer funds totaling nearly one billion dollars and for his failure to diligently supervise the handling of customer funds.
Per the Corzine Order, Corzine cannot seek or accept, directly or indirectly, reimbursement or indemnification from any insurance policy with regard to the penalty amount. The Corzine Order also requires Corzine to undertake that he will never act as a principal, agent, officer, director, or employee of a Futures Commission Merchant (FCM) and that he will never register with the CFTC in any capacity. As to Defendant Edith O’Brien, the former Assistant Treasurer of MF Global, the Court entered an Order (O’Brien Order) requiring her to pay a $500,000 civil monetary penalty for aiding and abetting MF Global’s violations and prevents her from associating with an FCM or registering with the CFTC in any capacity for a period of eighteen (18) months.
Previously, the CFTC obtained Orders against MF Global and its parent company MF Global Holdings Ltd. (Holdings), which Orders required restitution in amounts sufficient to pay all customer claims.
The Orders against Corzine and O’Brien were entered on Jan. 5, 2017, by Judge Victor Marrero of the U.S. District Court for the Southern District of New York.
Aitan Goelman, the CFTC’s Enforcement Director, stated: “This resolution demonstrates the importance that the Commission attaches to customer protection, which has long been a hallmark of our mission.”
The Orders arise out of the CFTC’s amended Complaint, filed on Dec. 6, 2013. The Corzine Order finds that Corzine was the CEO of MF Global from Sept. 1, 2010 through the commencement of its liquidation proceedings on Oct. 31, 2011 as well as the CEO and Chairman of the Board of Directors of its parent company Holdings. The O’Brien Order finds that she supervised MF Global’s Treasury Department, which handled the cash management of MF Global, and was responsible for directing, approving, and/or causing certain wire transfers and other payments into and out of MF Global’s customer accounts. Both Orders find that, during the last week of October 2011, in violation of U.S. commodity laws, MF Global unlawfully used nearly one billion dollars 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.
The Orders find that MF Global violated 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; and 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 as its controlling person. Furthermore, from at least August 2011 through Oct. 31, 2011, Corzine failed to supervise diligently the activities of the officers, employees, and agents of MF Global in their handling of customer funds. By this conduct, Corzine violated CFTC Regulation 166.3, 17 C.F.R. § 166.3.
The O’Brien Order finds that O’Brien, knowing that certain funds would be transferred from customer segregated accounts to MF Global’s proprietary accounts, on Thursday, Oct. 27, 2011 and Friday, Oct. 28, 2011, 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 (see CFTC Press Releases 6776-13 [Nov. 18, 2013] and 7095-14 [Dec. 24, 2014]). On Nov. 8, 2013, the CFTC obtained a federal Consent Order against MF Global for misuse of customer funds and related supervisory failures in violation of the CEA and CFTC Regulations (see CFTC Press Release 6776-13, Nov. 18, 2013). MF Global was required to pay $1.212 billion in restitution to its customers, as well as a $100 million civil monetary penalty. On Dec. 23, 2014, the CFTC obtained a federal court Consent Order against Holdings also requiring it to pay $1.212 billion in restitution, joint and several with MF Global, and imposed a $100 million penalty (see CFTC Order and Press Release 7095-14, Dec. 24, 2014).
Pursuant to these Orders against MF Global and Holdings, restitution has been paid to satisfy all customer claims (see CFTC Press Prelease 6904-14, April 3, 2014).
The CFTC thanks and acknowledges the assistance of the U.K. Financial Conduct Authority.