U.S. District Court for the Southern District of New York Judge Victor Marrero granted two Consent Orders to the CFTC. The Orders required former MF Global CEO Jon S. Corzine and former Assistant Treasurer of the same firm Edith O'Brien to pay civil monetary penalties and various non-monetary sanctions for allegedly using almost one billion dollars' worth of segregated customer funds to finance the operations of a futures commission merchant ("FCM") when it was undergoing a liquidity crisis. In addition to finding violations of the CEA's segregation requirements, the Court affirmed that Mr. Corzine failed to supervise the handling of customer funds adequately, and that Ms. O'Brien aided and abetted MF Global's violations.
The Consent Orders specified that MF Global illegally used "nearly one billion dollars of customer segregated funds" to support its proprietary and affiliate operations in order to pay (i) broker-dealer securities customers, and (ii) FCM customers for secured customer fund withdrawals. The CFTC emphasized that it had previously obtained a federal consent order against MF Global.
The first Consent Order specified that Mr. Corzine is liable for the company's violations as the controlling person of MF Global. For that reason, he is (i) required to pay $5 million in civil money penalties, (ii) prohibited from using funds derived from any insurance policy to pay such penalties, and (iii) permanently enjoined from (a) acting as an FCM principal, agent, officer, director or employee, and (b) registering with the CFTC in any capacity. The second Consent Order also required Ms. O'Brien to pay a $500,000 civil monetary penalty and prohibited her from associating with an FCM or registering with the CFTC in any capacity for a period of 18 months.
Commentary / Bob Zwirb
It is noteworthy that, despite the significance and notoriety of Mr. Corzine and Ms. O'Brien's alleged wrongdoing, neither defendant was required to admit to or deny the allegations. The case also illustrates the anomaly of the CFTC's law on supervision: a CEO may be held responsible for failing to supervise his underlings, notwithstanding the supervisor's active participation in the alleged misdeeds. In such instances, the problem isn't one of failing to supervise others, but of requiring them to be part of the principal's wrongdoing directly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
