The final shoe for former New Jersey Governor Jon Corzine has finally dropped. On Thursday, the Commodity Futures Trading Commission filed civil charges against Corzine over the failure of MF Global's "misuse of nearly one billion dollars of customer funds and related violations." Corzine was the CEO of MF Global, which filed for bankriptcy in October, 2011 and was later found to be missing $1.6 billion in customer money.
The government filing civil charges against a former Wall Street executive is incredibly rare. As the New York Times points out, it's a particularly stark contrast to the 2008 collapse of Lehman Brohters, where no employee has ever been charged. Former assistant treasure of MF Global Edith O'Brien was also charged with "aiding and abetting the firm's misuse of customer funds."
From the CFTC, with our emphasis:
According to the Complaint, Corzine, a former U.S. Senator and New Jersey Governor with more than twenty years of Wall Street experience, joined MF Global as CEO in March 2010 with a plan to transform the firm from a futures broker into a major investment bank. Corzine's strategy called for making increasingly risky and larger investments of the firm's money. In the summer and fall of 2011, as MF Global's need for cash was rising and its sources of cash were diminishing, Corzine knew that the firm was relying more and more on proprietary funds that it held alongside customer funds in FCM customer accounts. During this time, Corzine did not enhance MF Global's deficient systems and controls sufficiently to ensure that the firm's increasing reliance on FCM cash did not result in unlawful uses of customer money. Ultimately, these failures contributed to the massive customer losses.
As alleged, during October 2011, MF Global was on the brink of failure and in desperate need of cash to survive. As Holdings' Treasurer told Holdings' CFO at that time, in one of many recorded phone calls obtained by the CFTC, the firm was "skating on the edge," without "much ice left." Corzine was warned about the firm's liquidity stresses, and he knew that the firm violated its own policy that had been designed to protect customer funds. Holdings' Treasurer recommended to Holdings' CFO in a recorded call, "we have to tell Jon that enough is enough. We need to take the keys away from him."
In the last week of October 2011, with virtually no other sources of immediate cash to turn to, the firm repeatedly and unlawfully used customer funds for firm needs, ultimately leaving it nearly $1 billion short of customer funds. In that last week, Corzine is alleged to have been aware of the firm's true low cash balance, even as he directed the firm to continue paying large obligations without inquiring how the firm could come up with the money to do so. Corzine is charged for the firm's violations as an MF Global "control person" who, among other things, did not act in good faith and is also charged with violating his legal obligations to diligently supervise.
The CFTC is also seeking trading bans for Corzine and O'Brien. The suit has been anticipated for some time now. Corzine previously called a potential suit "meritless" and is set to fight the case. In addition to the trading ban, Corzine could face millions of dollars in personal losses.
The enforcement action was filed in the United States District Court for the Southern District of New York.