Federal Court Orders MF Global to Pay over $1 Billion in Restitution to Customers (with Lofchie Comment)
The U.S. District Court for the Southern District of New York has ordered MF Global Inc. to pay $1.212 billion in restitution to its customers to cover the losses sustained when MF Global failed in 2011. The court also imposed a $100 million civil monetary penalty on MF Global which will be collected after all its customers and creditors receive payment. The Order arises out of a Complaint filed by the CFTC in June 2013 charging MF Global and other Defendants with unlawful use of customer funds.
In the Complaint, the CFTC charged that, during the last week of October 2011, MF Global unlawfully used customer segregated funds to support its own proprietary operations and the operations of its affiliates. In addition, the Complaint alleged that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts, (ii) made false statements in reports it filed with the CFTC that failed to show the deficits in the customer accounts, (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid, in violation of CFTC regulation, and (iv) failed to diligently supervise the handling of commodity interest accounts carried by MF Global and the activities of its partners, officers, employees and agents.
In the consent Order, MF Global admits to the allegations pertaining to its liability based on the actions and omissions of its employees set forth in the consent Order and the Complaint.
Lofchie Comment: A bit of a strange case, since the government is on both sides of it; i.e., MF Global is represented by the SIPA Trustee. Further, since there is not enough money to pay back the customers, let alone the creditors, the additional civil money penalty seems to be moot.
See: CFTC Consent Order against MF Global; CFTC Press Release.See also: June 2013 Complaint; June 2013 Order.Related news: Customer Class Representatives, CME Group and MF Global Trustee Announce Agreements to Expedite Payments to MF Global Customers (November 6, 2013) U.S. Bankruptcy Court Approves MF Global/Bank Settlement (with Zwirb Comment) (July 10, 2013); CFTC Charges MF Global, Jon Corzine, and Former Employee Edith O'Brien with Unlawful Misuse of Nearly One Billion Dollars of Customer Funds (with Zwirb Comment) (June 27, 2013); Inspector General Report on CFTC and Chairman Gensler with Regard to MF Global (May 21, 2013).