The trustee for MF Global will begin making final distributions to satisfy its obligation of full restitution for USD1.212bn in losses sustained by customers when the company failed in 2011.
The consent order, entered on 8 November 2013 by Judge Victor Marrero of the US District Court for the Southern District of New York, required MF Global to begin making final restitution payments after obtaining permission from the bankruptcy court to remedy any shortfall with funds of the MF Global general estate.
Following an unsuccessful appeal by parties to related litigation, the bankruptcy court’s order allocating estate funds to satisfy customer claims has now become effective.
In addition to full restitution, the consent order imposed a USD100m 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.
Gretchen Lowe, acting director of the CFTC’s division of enforcement, says: “Throughout the division’s investigation and ongoing litigation, ensuring full restitution to customers has been a primary focus. I am pleased that the terms of the consent order are now being fulfilled and that these final restitution payments will satisfy the remaining shortfall. The CFTC will continue to ensure that those who violate US commodity laws and regulations designed to protect customer funds will be held accountable.”
The consent order arose out of the CFTC’s complaint, filed on 27 June 2013, charging MF Global and the other defendants with unlawful use of customer funds. In the consent order, MF Global admitted 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 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 regulations, 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’s litigation continues against the remaining defendants: MF Global Holdings Ltd., Jon S. Corzine, and Edith O’Brien.