Federal Court Orders MF Global Holdings Ltd. to Pay Restitution and Penalty for Unlawful Use of Customer Funds (with Lofchie Comment)

The CFTC obtained a federal court consent Order against MF Global Holdings Ltd. ("MFGH"), entered by the U.S. District Court for the Southern District of New York, requiring MFGH to pay restitution and a penalty for unlawful use of customer funds.

The consent Order arises out of the CFTC's amended Complaint, filed on December 6, 2013, charging that MFGH controlled its subsidiary MF Global Inc.'s ("MFGI") operations and was responsible for MFGI's unlawful use of customer segregated funds during the last week of October 2011. The amended Complaint also alleged that MFGH is responsible for MFGI's (i) failure to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts, (ii) filing of false statements in reports with the CFTC that failed to show the deficits in the customer accounts, and (iii) use of customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid, in violation of CFTC regulations.

Lofchie Comment: The case demonstrates the ability of the financial regulators to move money from the affiliates of a failed futures commission merchant ("FCM") (or presumably from the affiliates of any other failed broker-dealer) into the FCM (or broker-dealer) that held customer funds in order to pay customers back in full.

See: Order Against MFGH; CFTC Press Release.Related news: Consent Order to Require Reparations from MF Global to Victims Now Effective (April 3, 2014); Federal Court Orders MF Global to Pay over $1 Billion in Restitution to Customers (with Lofchie Comment) (November 18, 2013).