MF Global, the bankrupt brokerage firm led by former New Jersey Governor Jon Corzine, has been ordered by regulators to pay $1.2 billion in restitution to its customers.
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In a consent order entered on Nov. 8 by a federal judge in New York, MF Global, which collapsed in 2011, was also ordered to pay a $100 million fine.The Commodities Futures Trading Commission announced the order in a statement Monday.
According to the order, the fine will be paid after MF Global covers the losses of its former clients and repays certain creditors that received priority in MF Global’s bankruptcy proceedings.
The restitution order and fine stem from civil charges filed by the CFTC in June in which MF Global was accused of improperly using customer funds to pay off its rapidly escalating losses tied to bad bets on the European debt crisis.
The CFTC charged former CEO Corzine and former assistant treasurer Edith O’Brien with illegally using segregated customer funds in an effort to cover the firm's losses.
The regulator's civil cases against Corzine and O'Brien have yet to be resolved, despite the larger consent order.
The CFTC charged that during the last week of October 2011, as MF Global struggled to stay afloat, the firm illegally used customer segregated funds to support its own proprietary operations and the operations of its affiliates.
In addition to misusing customer funds, the CFTC alleged that MF Global failed to notify regulators immediately when it knew of deficiencies in its customer accounts.
MF Global also made false statements in reports it filed with the CFTC that failed to show the deficits in the customer accounts, according to the complaint, and used customer funds for “impermissible investments” in securities that were not considered readily marketable or highly liquid, all in violation of CFTC regulations.
Finally, MF Global executives “failed to diligently supervise” the handling of commodity interest accounts carried by the brokerage firm and the activities of its partners, officers, employees, and agents.
Corzine and O’Brien’s actions “harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale,” the CFTC said at the time the charges were filed.
Corzine, also a former U.S. Senator who led Goldman Sachs (NYSE: GS) before going into politics, joined MF Global as CEO in March 2010 with the intention of transforming the firm from a mid-sized futures broker into a major investment bank.
“Corzine’s strategy called for making increasingly risky and larger investments of the firm’s money,” the CFTC said.