WASHINGTONFederal regulators are accusing former New Jersey Governor Jon Corzine of failing to properly manage MF Global, which misused customer funds before its 2011 collapse.
A civil lawsuit by the Commodity Futures Trading Commission seeks to ban Corzine from trading in the futures market and demands he pay unspecified penalties. The regulator also filed civil charges against Edith O'Brien, the firm's former assistant treasurer.
About $1.2 billion in customer funds disappeared. Most of the money has been returned. MF Global has also agreed to pay a $100 million penalty as part of a settlement.
Corzine has disputed the allegations by the CFTC, which regulated MF Global.
New York-based MF Global sought bankruptcy protection after a disastrous bet on European countries' debt. Its $41 billion bankruptcy was eighth-largest in U.S. history.
MF Global collapsed in October 2011 under the weight of aggressive bets on sovereign debt, thin capital and questionable disclosures to investors. Customers were left reeling after it was revealed that more than $1 billion of their money could not be found.
Corzine is charged with violating his legal obligations to diligently supervise the company. O'Brien is charged with aiding and abetting the firm's misuse of customer funds.
The CFTC offers up new and dramatic allegations about Corzine's role in the downfall of the firm. Noting that Corzine's strategy was to make "increasingly risky and larger investments" despite the fact that the firm needed cash. "Corzine knew that the firm was relying more and more on proprietary funds that it held alongside customer funds in FCM customer accounts," but did nothing to ensure that the firm wasn't using customer money for its own trading."
In October 2011, the CFTC alleges, "Corzine was warned about the firm's liquidity stresses, and he knew that the firm violated its own policy that had been designed to protect customer funds." The commission cited a recorded call with MFGlobal's treasurer recommending to the CFO, "we have to tell Jon that enough is enough. We need to take the keys away from him."
"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," the CFTC said in a statement. "In that last week, 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."
David Meister, the CFTC's Enforcement Director, said it was only right to go after the person who was head of the company. "Turning a profit is not the only job of the person at the top of a CFTC-regulated firm," he said in a statement. "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."