Corzine Fined $5 Million

OMAHA (DTN) -- A federal court in New York has ordered Jon Corzine to pay a $5 million penalty for his role in the MF Global debacle and the Commodity Futures Trading Commission has now officially banned the former New Jersey governor from ever doing business in the futures industry.

A bankruptcy trustee overseeing MF Global's collapse concluded more than $1.2 billion in customer funds went missing when company executives moved the money from segregated customer accounts in late 2011.

MF Global's collapse led the CFTC to change the rules on customer protection in 2013 to better segregate customer funds. The rules enhance transparency on how companies use customer funds. The rules increased auditing requirements, supervision of customer collateral and gives regulators more access to firms' bank accounts.

A former CEO of Goldman Sachs in the 1990s, Corzine had been a Democratic senator and later the governor of New Jersey before he took over as CEO of MF Global in 2010. In less than two years, the company went bankrupt, leading to one of the biggest financial scandals involving a futures company and the misuse of customer funds.

On Thursday, the CFTC finalized a long civil case against Corzine with a federal judge ordering a $5 million dollar civil penalty against him and blocking Corzine from acting as a principal, agent, officer, director or employee of a Futures Commission Merchant for life. The CFTC stated the order ensures "he will never register with the CFTC in any capacity." The CFTC essentially stated Corzine did not properly supervise customer accounts at the trading firm.

At the time of the company's collapse, it had more than 38,000 customers with up to $6 billion in accounts. Those accounts were tied up for months, and in some cases, more than a year as customers tried to get their money back from MF Global.

MF Global came under stress because of its heavy load of European sovereign debt. MF Global sought to dump that debt and sold more than $1.3 billion in various securities and financial instruments to get rid of it. Over a stretch of a few days in late October 2011, the CFTC noticed shortfalls in customer accounts that initially were claimed as "accounting errors" that led to the CFTC finding a $900 million shortfall in customer accounts through a series of complex transactions.

The CFTC filed a civil complaint against Corzine and MF Global assistant treasurer Edith O'Brien that included recorded telephone conversations that appeared to directly contradict Corzine's testimony at three Congressional committee hearings. Members of Congress and others demanded Corzine be charged with perjury for lying before Congress. O'Brien had asserted her Fifth Amendment right against self-incrimination when she testified before the financial services subcommittee.

The CFTC order on Thursday also fined O'Brien $500,000 and banned her from doing business with a Futures Commission Merchant or registering with the CFTC for 18 months.

Compelled by congressional subpoena, Corzine testified in late 2011 before the House Agriculture Committee and claimed that he never intended to authorize the transfers, and to his recollection, never did anything to suggest he'd approve transfers out of segregated customer accounts. He also said customer money was not used to purchase foreign sovereign debt, and the company has not taken any losses on those investments.

"As the chief executive officer of MF Global, I ultimately had overall responsibility for the firm," Corzine told the committee. "I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral," Corzine said in his testimony. He also said he wasn't an expert in the futures market rules, which he never intended to break, or the operational aspects of the business.

"I simply do not know where the money is," he testified.

Later recordings and emails disputed Corzine's statements, citing that Corzine had approved account transfers to pay JP Morgan Chase for the collapsed value of that sovereign debt in an attempt get those obligations off MF Global's books.

In 2013, MF Global was required to pay $1.21 billion in restitution to customers and a $100 million fine, which the CFTC stated has been paid.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(BAS/ES)

Copyright 2017 DTN/The Progressive Farmer. All rights reserved.