CFTC Charges MF Global, Jon Corzine, and Former Employee Edith O'Brien with Unlawful Misuse of Nearly One Billion Dollars of Customer Funds
Commentary by Bob Zwirb
The CFTC filed an enforcement action against MF Global Inc., former Chief Executive Officer Jon S. Corzine, and former MF Global Assistant Treasurer Edith O'Brien. The charges originate from MF Global's alleged unlawful misuse of nearly one billion dollars of customer funds and related violations, that, according to the CFTC, "harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale."
The complaint outlines the sequence of events prior to MF Global's demise, highlighting the claimed failures of each individual or entity. MF Global has already agreed to a settlement, subject to court approval, and the CFTC has said that it will seek restitution and penalties against Holdings, Corzine, and O'Brien. In addition, the CFTC will seek trading, registration bans, and injunctions against Corzine and O'Brien.
CFTC Commissioner Bart Chilton released a statement declaring that this was a bellwether case for the CFTC, and expressed his hope that the investigation and prosecution would restore confidence in the futures markets.
See: CFTC Press Release, Complaint: MF Global Inc., et al., Order: MF Global Inc., and Commissioner Bart Chilton's Statement.
See also: Senate Ag Committee Chairwoman Stabenow Applauds CFTC for Pursuing Accountability in MF Global Collapse, Pledges to Continue Seeking Additional Customer Protections.
Related News: "Inspector General Report on CFTC and Chairman Gensler with Regard to MF Global" (May 21, 2013); "Senator Stabenow Issues Statement on MF Global Settlement" (February 1, 2013); "Commissioner Bart Chilton Remarks on MF Global Claims and Possible "Futures Insurance and Customer Protection Act" (December 26, 2012); "Congressman Capuano's Report Says That Corzine Is Not Only One to Blame for MF Global's Collapse (with Lofchie Comment and YouTube Videos)" (December 4, 2012); "MF Global UK High Court Judgment Limits Potential Recovery for U.S. Investors (with Lofchie Comment)" (November 12, 2012); "House Financial Services Subcommittee on Oversight and Investigations to Release Results of Investigation into MF Global's Collapse in Next Few Weeks" (November 2, 2012); "CFTC Chairman Gary Gensler and Commissioner Jill Sommers Testify before the U.S. Senate Committee on Agriculture Re: MF Global, Peregrine, and the Oversight of FCMs" (August 1, 2012); "CME Group's Duffy to Appear before U.S. Senate Committee on Agriculture to Discuss Futures Markets and the Failures of MF Global and Peregrine" (August 1, 2012); "Senate Testimony: Bankruptcy Trustee Expects to Recover All Assets from MF Global" (July 31, 2012); "CFTC Files a General Creditor Claim in the Liquidation of MF Global" (June 1, 2012).
Commentary
Ultimately what this matter boils down to is whether there was deliberate misuse of customer segregated funds to stave off a liquidity crisis.
Another aspect of this case deserves mention - the charge of failure to supervise underCFTC Rule 166. In CFTC-land, wrongdoing initiated by top management is still regarded as violation of its "failure to supervise" rule, notwithstanding that the alleged failure here largely involved the most senior supervisors.