Just when you think they all got completely away with it, along comes one government regulator, the CFTC.  The U.S. Commodity Futures Trading Commission issued a settlement with MF Global.   The firm settlement consisted of full restitution of the $1 billion customer money lost plus a $100 million fine.  Yet the CFTC also filed civil charges against former CEO Jon Corzine along with another MF Global executive, Edith O'Brien.

The U.S. Commodity Futures Trading Commission (CFTC) today filed an enforcement action in the United States District Court for the Southern District of New York against MF Global Inc. (MF Global), a registered futures commission merchant (FCM), MF Global Holdings Ltd. (Holdings), former Chief Executive Officer of MF Global and Holdings Jon S. Corzine, and former Assistant Treasurer of MF Global Edith O’Brien based on, among other violations, MF Global’s unlawful use of customer funds that harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale.

MF Global has agreed to settle all charges against it on terms set forth in a proposed order that is subject to court approval and includes 100% restitution of the approximately $1 billion lost by all commodity customers when the firm failed on October 31, 2011.

The CFTC acknowledged something we knew all along.  Corzine was lying about not knowing how customer funds was unlawfully used for trades or where $1.2 billion of MF Global's customer money went.

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 going after the MF Global Assistant Treasurer Officer:

O’Brien, MF Global’s Assistant Treasurer, is charged with aiding and abetting the firm’s misuse of customer funds. According to the Complaint, she directed, approved, and/or caused improper transfers of hundreds of millions of dollars from customer accounts to help meet the firm’s needs during the final days of October 2011, while knowing that MF Global did not have sufficient proprietary funds available in those customer accounts for those transfers. The Complaint alleges that O’Brien remarked in a recorded telephone conversation that it “could be game over” from a regulatory perspective if funds were not returned to customer accounts on Friday, October 28, 2011, MF Global’s final business day.

What the additional penalties against Corzine are is unclear at this point.  The press release states this:

The CFTC also seeks full restitution and penalties against Holdings, Corzine, and O’Brien, in addition to trading and registration bans and injunctions against Corzine and O’Brien.

Yet the press release seems to open up the possibility of more personal lawsuits against Corzine and O'Brien with this statement:

With respect to the company defendants, in addition to the misuse of customer funds described above, the Complaint charges that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; (ii) filed false reports with the CFTC that failed to show the deficits in the customer accounts; and (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global’s violations of the Commodity Exchange Act and CFTC regulations.

If the CFTC wins their civil lawsuit against Corzine, beyond being banned from trading, they could impose stiff personal penalties.  Generally speaking it looks like Corzine will be personally sued into political and economic oblivion as he has been bombarded with private lawsuits already in addition to the government now filing civil litigation against him.  Yet of course no one is actually going to jail for illegally using and losing over $1 billion of customer's funds.  Contrast that with the 20 year prison sentence commonly imposed for sticking up the local 7/11.