As the risks associated with Corzine’s strategy mounted, he repeatedly was permitted by the holding company’s board to increase the size of the investments, the regulator said.
The CFTC, led by Chairman Gary Gensler, has itself been blamed for contributing to MF Global’s downfall. Gensler, 55, who was a colleague of Corzine’s at New York-based Goldman Sachs and recused himself from the agency’s investigation of the case, failed to coordinate with the SEC, according to a November report by U.S. House Republicans.
It’s hard to bring cases against CEOs like Corzine, “largely because they are so well-lawyered, so well- protected,” said Arthur Levitt, a former SEC chairman who’s an adviser to Goldman Sachs and on the board of Bloomberg News parent Bloomberg LP. “The CFTC under Gary Gensler has been much more aggressive than any of its predecessors.”
MF Global’s collapse on Oct. 31, 2011, was the eighth- biggest bankruptcy in U.S. history. A $6.3 billion wager on the bonds of some of Europe’s most-indebted nations helped destroy the firm and its brokerage unit, which listed assets of $41 billion and debt of $39.7 billion in its Chapter 11 filing.
Corzine was warned about MF Global’s liquidity crunch and “knew the firm violated its own policy that had been designed to protect customer funds,” the CFTC said in a statement.
Kent Jarrell, a spokesman for James W. Giddens, the trustee for the liquidation of the brokerage unit, said in an e-mailed statement that the agreement with the CFTC, which is subject to court approval, is “appropriate.”
Corzine has also been sued along with senior executives Bradley Abelow and Henri Steenkamp in U.S. Bankruptcy Court by Louis J. Freeh, a trustee winding down the brokerage. Freeh alleged that they failed to act in good faith and implemented strategies that caused the company to fail.
The CFTC “will have to prove there were red flags” that Corzine ignored, said Bruch, the former SEC attorney. “The complaint doesn’t say he was corrupt or lied to regulators.”
The case is U.S. Commodity Futures Trading Commission v. MF Global Inc., 13-04463, U.S. District Court for the Southern District of New York (Manhattan).