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U.S. Files Civil Charges Against Former Governor Jon Corzine Over MF Global Collapse

jon-corzinejpg-edcd36552fa2af16

The United States has filed a civil complaint against former New Jersey Governor Jon Corzine over the collapse of MF Global:

Jon S. Corzine, no stranger to bare-knuckle brawls after spending nearly 40 years on Wall Street and in New Jersey politics, now faces the biggest fight of his career: a showdown with the United States government.

On Thursday, federal regulators sued Mr. Corzine in connection with the collapse of the brokerage firm MF Global and apparent misuse of customer money during its final days. Mr. Corzine, a former United States senator and New Jersey governor, ran the firm until its bankruptcy in October 2011.

The Commodity Futures Trading Commission, the federal agency that regulated MF Global, argued in the lawsuit that Mr. Corzine had failed to prevent a lower-level employee from transferring customer money to banks and clearinghouses. The agency also sued that employee, Edith O’Brien, assistant treasurer, who oversaw the transfer of customer money from the firm’s Chicago office.

While the agency did not accuse Mr. Corzine of authorizing the breach of more than $1 billion in customer money, or even knowing that the wrongdoing had happened, it claimed that he had failed to “diligently supervise” the firm as it jeopardized the client accounts. The suit also outlined a more ambitious claim that Mr. Corzine was subject to so-called control person liability, a legal provision that allows for the punishment of executives for the bad acts of lower-level employees.

“Turning a profit is not the only job of the person at the top of a C.F.T.C.-regulated firm,” said David Meister, the agency’s enforcement director. “Particularly in times of crisis, the person in control, like the C.E.O. 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 lawsuit, filed in United States District Court in Manhattan, provides the most complete account to date of MF Global’s collapse and its violation of customer protections. Citing dozens of e-mails and capturing previously unreleased phone calls that laid bare the firm’s chaotic final days, the government painted the first real-time synopsis of a Wall Street blowup using executives’ own haunting words.

In a call recorded by the firm in October 2011, for example, the firm’s global treasurer acknowledged to a colleague that MF Global was “skating on the edge,” without “much ice left.”

In another call that month, the global treasurer indicated that the firm’s liquidity “situation” was “not sustainable” and that “we have to tell Jon that enough is enough. We need to take the keys away from him.” Mr. Corzine, who inherited a firm in 2010 that lost money in each of the previous three years, nicknamed this person “the Gravedigger.”

If found liable, Mr. Corzine and Ms. O’Brien could face fines and possibly a ban from trading commodities. Such a ban would deliver a blow to Mr. Corzine, 66, a onetime titan of Wall Street and Washington.

But Mr. Corzine, who no longer appears to be drawing scrutiny from criminal authorities, has indicated that he will fight the civil charges. Andrew J. Levander, Mr. Corzine’s lawyer, denounced what he called “an unprecedented lawsuit based on meritless allegations that Mr. Corzine failed to supervise an experienced back office professional who was located in a different city and who did not report to Mr. Corzine or even to anyone who reported to Mr. Corzine.”

Mr. Levander added that Mr. Corzine “did nothing wrong, and we look forward to vindicating him in court.”

Steven Goldberg, a spokesman for Mr. Corzine, said the trading commission’s lawsuit “is not surprising considering the political pressure to hold someone liable for the failure of MF Global,” the largest Wall Street bankruptcy since the 2008 financial crisis.

In suing Mr. Corzine, the agency took an unusually hard line against a Wall Street executive, setting up a legal battle that could drag on for years. Unlike other regulatory agencies, which often settle with defendants without extracting an admission of guilt, the agency also obtained an acknowledgment of wrongdoing from MF Global’s estate. As part of the announcements on Thursday, which thrust the once-obscure trading commission onto its biggest stage, the commission imposed a $100 million fine on the estate.

“This is a bellwether case for the commission following an exhaustive investigation,” said Bart Chilton, a commissioner at the agency who has railed against the breach of customer accounts.

Given the complicated nature of the case, and of MF Global’s business to begin with, it’s hard to say what the merits of this suit are. At the very least, though, this is yet another headache for Corzine that is likely to last for years.

Here’s a copy of the Complaint:

CFTC v. Jon Cozine et al by dmataconis

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. rudderpedals says:

    Is it a Sarbox complaint? Scribd be very very bad to me.

    Like or Dislike: Thumb up 0 Thumb down 0

  2. Just Me says:

    Holder didn’t have the balls to file criminal charges against him. Nice to see somebody does even if it is a civil suit. Hole he loses everything.

    Like or Dislike: Thumb up 1 Thumb down 0

  3. legion says:

    Feh. They stole $1.2 billion a couple of years ago, and their punishment is to return “most” of it and a $100 million fine? 4.1% interest on $1.2B over 2 years covers $100M easy. These dirtbags still made a profit. Until they actually start feeling pain for doing things like this, there is no deterrent.

    Like or Dislike: Thumb up 3 Thumb down 0

  4. Rob in CT says:

    Civil suit, meh.

    By the way, since we’re on the topic of bankster shenanighans, anyone following the Anglo-Irish tapes scandal? Utterly brazen stuff. Nobody’s in jail yet.

    Like or Dislike: Thumb up 1 Thumb down 0

  5. OldSouth says:

    The Enron executives who created such chaos, cooked books, bankrupted so many who had trusted them–these people went to PRISON!! They were prosecuted by the Bush Justice Department, and GW Bush’s Texas connections and friendship with the main players did not keep them out of the pokey.

    Eric (Give Marc Rich a get-out-jail-free-card/remember all those donations?) Holder and company file suit, quietly, two years later.

    It will languish, and quietly settle. Corzine will be rehabilitated, and one day ascend to a future Democrat cabinet post. Treasury comes to mind. If Anthony Weiner can be Mayor of New York, anything is possible.

    The farmers he bankrupted will be forgotten.

    Hope. Change. Yes we can.

    Like or Dislike: Thumb up 3 Thumb down 1

  6. Just Me says:

    Two-Holder’s main purpose at justice is to make sure all the democratic cronies get by unscathed. He protected Corzine and now tosses out a small bone.

    Corzine gets to bilk people out of their money and escape prison-must be nice to be a democrat thief when the Ds are in charge.

    Like or Dislike: Thumb up 2 Thumb down 1

  7. Jenos Idanian says:

    Corzine is clearly criminally liable for MF Global’s misdeeds, under a law I believe he not only voted for, but helped write. But he’s a Very Important Democrat and Friend Of Obama’s, so he’ll get away with it. This civil action barely qualifies as a wrist-slap.

    Eric Holder knows how to protect his friends and punish his foes. That’s his job, after all.

    Like or Dislike: Thumb up 1 Thumb down 1

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