The U.S. Commodity Futures Trading Commission (CFTC) Thursday filed its case against MF Global Inc., MF Global Holdings Ltd. and CEO Jon Corzine and an assistant treasurer for illegal use of customer money, calling for 100% restitution of customer losses totaling approximately $1 billion, plus a $100 million penalty, in the firm’s October 2011 bankruptcy

The CFTC complaint seeks trading and registration bans and injunctions against Corzine, a former U.S. senator, New Jersey governor, and head of the Goldman Sachs Group; and Edith O’Brien, which would block their return to Wall Street. The CFTC had come down hard in the case against MF Global for misuse of customer funds, which disappeared into the vortex created by the company’s risky moves into European debt markets (see Daily GPI, Nov. 2, 2011). MF Global has agreed to settle all charges against it on terms set forth in a proposed order that is subject to review by the United States District Court for the Southern District of New York.

“As alleged, during October 2011, MF Global was on the brink of failure and in desperate need of cash to survive, the CFTC complaint states. “In the last week of October 2011, with virtually no other sources of immediate cash to turn to, the firm repeatedly and unlawfully used customer funds for firm needs, ultimately leaving it nearly $1 billion short of customer funds.”

Corzine is alleged to have been aware of the firm’s true low cash balance, even as he directed the firm to continue paying large obligations without inquiring how the firm could come up with the money to do so, the complaint states. He is charged for the firm’s violations as an MF Global “control person” who, among other things, did not act in good faith. He also is charged with violating his legal obligations to diligently supervise.

David Meister, the CFTC enforcement director, said, “Turning a profit is not the only job of the person at the top of a CFTC-regulated firm. Particularly in times of crisis, the person in control, like the CEO here, must do what’s necessary to prevent unlawful uses of customer money, so that customers’ money is still there if and when the music stops. The allegations in our complaint serve as a stark reminder that we will enforce the law against responsible individuals at all levels of a firm to ensure that customer funds are properly safeguarded every minute of every day.”

O’Brien is said to have “directed, approved, and/or caused improper transfers of hundreds of millions of dollars from customer accounts to help meet the firm’s needs during the final days of October 2011, while knowing that MF Global did not have sufficient proprietary funds available in those customer accounts for those transfers.” The complaint alleges that O’Brien remarked in a recorded telephone conversation that it “could be game over” from a regulatory perspective if funds were not returned to customer accounts on Friday, Oct. 28, 2011, MF Global’s final business day.

The complaint also charges that MF Global unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; filed false reports with the CFTC that failed to show the deficits in the customer accounts; and used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global’s violations of the Commodity Exchange Act and CFTC regulations.

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