Ex-MF Global CEO Jon Corzine Settles Securities Fraud Case Brought by the CFTC for $5M

Jon S. Corzine, the former head of MF Global Inc. has arrived at a securities settlement with the US Commodity Futures Trading Commission in which he will pay a $5M penalty for his involvement in the firm’s illegal use of nearly $1B in customer money and for not properly supervising the way these funds were handled. A federal judge has approved the deal.

The regulator sued Corzine in 2013 and he must now pay the civil penalty out of his own funds rather than have an insurer cover the costs. Also part of the deal, Corzine has agreed to a permanent bar from heading up a futures broker or registering with the CFTC. This means that he will no longer be allowed to trade other people’s funds in the future industry unless the trades are below specific threshold limits.

Corzine’s settlement with the SEC comes after he’d resolved most of the private litigation against him related to MF Global. Investors and the industry were flummoxed when the almost $1B in customer couldn’t be accounted for. Fortunately a trustee has since recovered the missing funds for the investors, which are both individuals and hedge funds, to whom the money belonged. The money, which were segregated customer funds, was inappropriately used to fund the futures commission merchant’s proprietary operations and that of its affiliates, pay FCM customers for withdrawals involving customer funds, and pay brokerage firm securities customers.

Corzine, formerly New Jersey’s governor and once a Democratic senator, had bet big on European sovereign debt after joining the firm as chairman and CEO in 2010. Although the bets could have been profitable, they weren’t enough to rescue MF Global from its other problems. Prior to having to file for bankruptcy, the firm overdrew an account at JP Morgan Chase (JPM) and it was then that the improper transfers of customer funds increased.

According to the CFTC’s order, MF Global violated the agency regulations and the Commodity Exchange Act when it did not handle, treat, or account for customers’ segregated funds as belonging to these customers, did not properly segregate these funds— commingling their segregated funds with other funds— and used customers’ funds to operate MF Global and its affiliates.

Although Corzine wasn’t directly tied to the missing funds, he was found liable for MF Global’s violations because he served as the controlling person.

Meantime, the CFTC has accused an MF Global employee of aiding and abetting the misappropriation of customer funds. Former MF Global employee, Edith O’ Brien, arrived at a settlement with the SEC. O’Brien, who had served as the company’s assistant treasurer, had been in charge of overseeing MF Global’s Treasury Department.  She will pay a $500K penalty and is barred from associating with futures brokers for 18 months.

The CFTC had settled previous charges brought against MF Global and its parent company. CFTC said that MF Global misused customer money and committed related supervisory failures. The futures broker was ordered to pay $1.12B in restitution and a $100M penalty. The parent company was also ordered to pay $1.212B severally and jointly with MF Global and the $100M penalty.

CFTC Consent Order in the Corzine Case (PDF)

CFTC Consent Order in the O’Brien Case (PDF)