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From Securities Regulation Daily, January 21, 2014

Court rejects Corzine’s request to throw out CFTC’s MF Global charges

By Amanda Maine, J.D.

A federal court has refused to dismiss charges against MF Global Holdings’s former CEO and chair, Jon Corzine, and former assistant treasurer, Edith O’Brien, for their roles in the collapse of the company. The court found that dismissal at this stage would be inappropriate and that the defendants’ arguments would be more properly addressed following discovery (Deangelis v. Corzine, January 17, 2014, Marrero, V.).

Background. MF Global was a major derivatives broker prior to its bankruptcy and liquidation in the fall of 2011. The collapse was allegedly the result of placing high-risk bets using customer funds on certain foreign investments in violation of fund segregation rules and internal controls requirements. Following the collapse, the CFTC sued MF Global, Corzine, and O’Brien. In a settlement announced on June 27, 2013, the company agreed to pay restitution to customers of nearly $1 billion, as well as a $100,000 monetary penalty. The CFTC sought additional penalties against Corzine and O’Brien, who moved to dismiss the charges against them.

Motion to dismiss. In his motion to dismiss, Corzine argued that the CFTC’s complaint did not adequately identify violations of CFTC rules, that it failed to demonstrate that Corzine either acted in bad faith or that he knowingly induced violations of the Commodity Exchange Act (CEA), and that it did not adequately allege that he had supervisory authority over persons who violated the CFTC’s rules.

The court rejected Corzine’s argument. The court advised that the motions to dismiss amounted to asking the court not to draw reasonable inferences that Corzine and O’Brien violated the CEA by illegally transferring funds from customer segregated accounts. At this stage in the proceeding, the court noted, the pleadings must be accepted as true, and ambiguities must be resolved in favor of the opponent of the motion to dismiss. The court concluded that the issues raised by Corzine and O’Brien would be more properly addressed after more discovery had been completed and when there would be a fuller record to evaluate.

The case is No. 11 Civ. 7866.

Attorneys: Christopher J. Keller (Labaton Sucharow, LLP) for Virginia Retirement System and Her Majesty the Queen in Right of Alberta. Brian C. Kerr (Brower Piven, PC) for Joseph Deangelis. Arthur Harlod Aufses, III (Kramer Levin Naftalis & Frankel, LLP) for Bradley I. Abelow. Stuart Jay Baskin (Shearman & Sterling LLP) for Sandler O'Neill & Partners, L.P. and U.S. Bancorp Investments, Inc. James J. Capra, Jr. (King & Spalding LLP) for PricewaterhouseCoopers LLP.

Companies: U.S. Bancorp Investments, Inc.; PricewaterhouseCoopers LLP; Sandler O'Neill & Partners, L.P.; Virginia Retirement System; MF Global Holdings

MainStory: TopStory BrokerDealers CFTCNews CommodityFutures DirectorsOfficers Enforcement NewYorkNews

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