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CFTC files action against MF Global, Corzine and O’Brien

The Commodity Futures Trading Commission today filed an enforcement action against MF Global Inc., the futures commission merchant that unlawfully used customers funds including those of farmers before it went bankrupt in 2011, and also against its CEO, former New Jersey Democratic U.S. Sen. and Gov. Jon Corzine, and against the company’s former assistant treasurer, Edith O'Brien.

Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., praised the action.

“This is an important step forward and I appreciate that the CFTC continues to pursue this matter and fight for customers and market integrity,” Stabenow said.

“The loss of $1.2 billion in customer funds represents an extraordinary breach of trust and devastated thousands of farmers, ranchers and small businesses who rely on the futures market to hedge business risk. The Senate Agriculture Committee will continue throughout the upcoming CFTC reauthorization process to consider additional protections to ensure that customer money is not used improperly and to prevent situations like the MF Global bankruptcy from happening again.”

Rep. Randy Neugebauer, R-Texas, chairman of the House Financial Services Subcommittee on Housing and Insurance and a member of the House Agriculture Committee, said in a news release that the CFTC’s conclusions “track closely with my subcommittee’s findings that Jon Corzine’s decisions caused farmers, ranchers, and other customers to lose more than $1 billion.”

“He didn’t act in good faith as a steward of these funds, and he violated his legal obligations by failing to adequately oversee MF Global’s operations,” Neugebauer said. “He should bear the responsibility for these unlawful and harmful actions. I appreciate all the work the CFTC has put into this case.”

CFTC Commissioner Jill Sommers, a Republican who has been in charge of the MF Global inquiry because CFTC Chairman Gary Gensler had worked with Corzine, said she was pleased that MF Global has agreed to settle all charges against it on terms set forth in a proposed order that is subject to court approval and includes 100 percent restitution of the approximately $1 billion lost by all commodity customers when the firm failed on October 31, 2011.

In a news release, the CFTC said that “as MF Global’s need for cash was rising and its sources of cash were diminishing, Corzine knew that the firm was relying more and more on proprietary funds that it held alongside customer funds in FCM customer accounts. During this time, Corzine did not enhance MF Global’s deficient systems and controls sufficiently to ensure that the firm’s increasing reliance on FCM cash did not result in unlawful uses of customer money. Ultimately, these failures contributed to the massive customer losses.”

Corzine is charged for the firm’s violations as an MF Global “control person” who, among other things, did not act in good faith and is also charged with violating his legal obligations to diligently supervise, the complaint said.

“Turning a profit is not the only job of the person at the top of a CFTC-regulated firm,” said David Meister, the CFTC’s enforcement director. “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,” Meister said.

O’Brien, MF Global’s assistant treasurer, is charged with aiding and abetting the firm’s misuse of customer funds.

According to the complaint, she 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.

If approved by the U.S. District Court and the U.S. Bankruptcy Court, the proposed settlement of all charges against MF Global will require 100 percent restitution of all remaining commodity customer claims, the CFTC said in the news release.

The proposed order also includes the imposition of a $100 million penalty, which can be paid to the extent MF Global has not fully exhausted all available funds and assets paying customers and then other creditors entitled to priority under bankruptcy law.

The CFTC also seeks full restitution and penalties against MF Global, Corzine, and O’Brien, in addition to trading and registration bans and injunctions against Corzine and O’Brien.