Jon Corzine, former chief executive officer of MF Global Inc. (MFG), objected to a proposed motion for summary judgment to be filed by the Division of Enforcement of the Commodity Futures Trading Commission in its lawsuit against him and Edith O’Brien related to their alleged role in the collapse of MFG in October 2011, claiming that the CFTC “grossly mischaracterizes the evidence.”

The CFTC filed a civil lawsuit against Mr. Corzine and Ms. O’Brien—the assistant treasurer of MFG at the time of the firm’s collapse—as well as against MFG itself and its parent company, MF Global Holdings Ltd. (MFGH), in June 2013 in a federal court in New York. The firm—a CFTC-registered futures commission merchant prior to its collapse—filed for bankruptcy protection in October 2011 after using nearly one billion US dollars of customer-segregated funds to support its own proprietary positions.

The CFTC charged all four defendants with failing to segregate customer funds as required by law and for misusing customer funds. MFGH and Mr. Corzine were charged as controlling persons of MFG; Ms. O’Brien was charged with aiding and abetting MFG’s wrongful conduct; and MFG and Mr. Corzine were also charged with failure to supervise. MFG and MFGH subsequently settled the CFTC actions. (Click here to access the CFTC’s complaint.)

In a letter to the court dated December 16, 2015, informing it of its intent to file a motion for summary judgment, the CFTC’s Division of Enforcement claimed that there were “[u]ndisputed facts [that] reveal that Corzine failed to act in good faith to prevent [MFG’s] segregation violations and, further knowingly induced the violations.” Among other things, the CFTC alleged that “Corzine knew that one policy—one that was specifically designed to protect customer funds—was ignored and/or violated on multiple occasions.”

Responding in a letter to the court dated December 22, 2015, Mr. Corzine argued that he “never directed, authorized, or countenanced any violations of [relevant law or CFTC rules] by MF Global or any of its employees.” Moreover, he claimed he delegated responsibility for matters related to customer funds protection “to experienced and competent personnel in the finance, treasury, compliance and legal departments.”

No date was set for a hearing on this matter.

All customers of MFG were repaid all balances the FCM owed them. (Click here for details of this distribution in the article, “MF Global Inc. Trustee Announces Final 100% Distribution to Customers” in the April 7, 2014 edition of Bridging the Week.)

My View: Time will tell whether the CFTC possesses sufficient evidence to prove its case against Mr. Corzine, or whether, beforehand, the relevant judge will grant a Commission motion for summary judgment. However, more than four years after the collapse of MFG one thing is clear: in the face of potential material issues, regulators expect senior officers to do more than simply take a verbal or even a written assurance from subordinates that “all is well—don’t worry,” or, even worse, a vague response. Where there is a potential material breach of law, regulators expect the senior officers to take some purposeful or affirmative action to ensure themselves that representations by staff can be reasonably relied on. As David Meister, the then Director of the CFTC’s Division of Enforcement, said at the time of the filing of the agency’s enforcement action against MFG and Mr. Corzine, “ [t]urning a profit is not the only job of the person at the top of a CFTC-regulated firm. 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.”