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Corzine sued by US over misuse of customer’s money

Former chairman and CEO of MF Global Jon S. Corzine testified during a 2011 hearing before the Oversight and Investigations Subcommittee of the House Financial Services Committee.

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Former chairman and CEO of MF Global Jon S. Corzine testified during a 2011 hearing before the Oversight and Investigations Subcommittee of the House Financial Services Committee.

NEW YORK — Nearly two years after Jon S. Corzine watched his brokerage firm implode, federal regulators have sued the former MF Global chief executive over the firm’s misuse of customer money during its final days, a stinging blow to the onetime titan of Wall Street and Washington.

The Commodity Futures Trading Commission, the federal agency that regulated MF Global, announced civil charges against Corzine on Thursday, claiming he failed to prevent a lower-level MF Global employee from transferring customer money to banks and clearinghouses. The agency also announced a lawsuit against that employee, Edith O’Brien, who oversaw the transfer of customer money from the firm’s Chicago office.

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The lawsuit, filed in U.S. District Court for the Southern District of New York, cites internal MF Global emails and recorded phone calls that shed light on the chaos surrounding the firm. In one call recorded by the firm, for example, O’Brien acknowledged to a colleague that the firm was “skating on the edge,” without “much ice left.”

While the agency did not accuse Corzine of authorizing the breach of customer money, it claimed that he failed to “diligently supervise” the firm and is subject to 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 CFTC-regulated firm,” said David Meister, the agency’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.”

In suing Corzine, the agency took a rare hard line stance against a Wall Street executive, setting up a protracted legal battle that could drag on for years. The case, perhaps the most prominent action to be filed in the trading commission’s 40-year history, will thrust the once-obscure agency onto its biggest stage.

“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 since the firm’s bankruptcy on Halloween 2011.

In a separate action, MF Global’s estate settled civil charges with the agency and agreed to fully repay the more than $1 billion that vanished from customer accounts. If the firm is able to do so, the agency ordered MF Global to then pay an additional $100 million penalty.

If found liable, Corzine and O’Brien could face fines and possibly a ban from trading commodities. Such a move would cap a steep fall for Corzine, 66, who was a onetime Democratic governor and senator from New Jersey and a former chief of Goldman.

Corzine has indicated that he will fight the charges. In a statement, a spokesman for Corzine denounced the trading commission for planning to file what he called an “unprecedented and meritless civil enforcement action.” The spokesman for Corzine, Steven Goldberg, said the trading commission’s anticipated 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.

A lawyer for O’Brien, Evan Barr, did not immediately comment on the case.

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