The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent Order against Defendant MF Global Inc. (MF Global) requiring it to pay $1.212 billion in restitution to customers of MF Global to ensure customers recover their losses sustained when MF Global failed in 2011.
The consent Order, entered on November 8, 2013 by U.S. District Court Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million civil monetary penalty on MF Global, to be paid after MF Global has fully paid customers and certain other creditors entitled to priority under bankruptcy law. The Trustee for MF Global obtained permission from the bankruptcy court to pay restitution in full to customers to remedy any shortfall with funds of the MF Global general estate.
The consent Order arises out of the CFTC’s complaint, filed on June 27, 2013, charging MF Global and the other Defendants with unlawful use of customer funds (see CFTC Press Release 6626-13, June 27, 2013). In the consent Order, MF Global admits to the allegations pertaining to its liability based on the acts and omissions of its employees as set forth in the consent Order and the Complaint. The CFTC’s litigation continues against the remaining defendants: MF Global Holdings Ltd., Jon S. Corzine, and Edith O’Brien.
Gretchen Lowe, Acting Director of the CFTC’s Division of Enforcement, stated, “Division staff have worked tirelessly to ensure that 100 percent restitution be awarded to satisfy customer losses. The CFTC will continue to ensure that those who violate U.S. commodity laws and regulations designed to protect customer funds will be vigorously prosecuted.”
The CFTC’s Complaint charged MF Global, a registered Futures Commission Merchant (FCM), with violating provisions of the Commodity Exchange Act and CFTC Regulations intended to protect FCM customer funds and requiring diligent supervision by registrants. Specifically, the Complaint charged that during the last week of October 2011, MF Global unlawfully used customer segregated funds to support its own proprietary operations and the operations of its affiliates. In addition to the misuse of customer funds, the Complaint alleged 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) made false statements in reports it filed with the CFTC that failed to show the deficits in the customer accounts, (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation, and (iv) failed to diligently supervise the handling of commodity interest accounts carried by MF Global and the activities of its partners, officers, employees, and agents.
The CFTC appreciates the assistance of the U.S. Attorneys’ Offices for the Southern District of New York and the Northern District of Illinois, the Federal Bureau of Investigation, the Securities and Exchange Commission, and the Financial Conduct Authority in the United Kingdom.
The consent Order recognizes the cooperation of the Trustee for MF Global and requires the Trustee’s continued cooperation with the CFTC.
CFTC Division of Enforcement staff members responsible for this case are Sheila Marhamati, David W. Oakland, Chad Silverman, K. Brent Tomer, Douglas K. Yatter, Steven Ringer, Lenel Hickson, and Manal Sultan. Staff from the CFTC’s Division of Swap Dealer and Intermediary Oversight, Division of Clearing and Risk, and Office of Data and Technology also assisted in this matter.