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From Securities Regulation Daily, November 18, 2013

MF Global $1.212 billion restitution order approved

By Anne Sherry, J.D.

The District Court in New York City has approved a settlement requiring MF Global to pay $1.212 billion in restitution and a civil penalty of $100 million. The CFTC and the SIPA liquidation trustee for MF Global agreed to the settlement in June 2013. According to the CFTC’s complaint, MF Global unlawfully used nearly $1 billion of its customer-segregated funds to support its operations after risky investments caused a strain on capital and liquidity (CFTC v. MF Global Inc., November 8, 2013, Marrero, V.).

Use of customer segregated funds. As reported in the June 27, 2013, edition of Securities Regulation Daily, the CFTC’s complaint alleged that Edith O’Brien, MF Global’s assistant treasurer, and her staff directed, approved, and/or caused transfers totaling more than the excess funds from MF Global’s segregated accounts to its proprietary accounts to help meet its liquidity needs. Jon Corzine, the former politician who became MF Global’s CEO in 2010, was made aware of the firm’s liquidity issues and knew that the firm lacked the cash to satisfy its obligations. The complaint describes emails, meetings, and telephone calls that indicated Corzine’s knowledge of the situation. MF Global also violated its obligation to report the deficiencies in customer-segregated accounts to the CFTC.

Restitution and penalty. The MF Global trustee obtained the bankruptcy court’s permission to pay restitution in full to customers and to remedy any shortfall with estate funds. The $100 million civil penalty will be paid after the restitution obligation and other estate claims senior to the penalty, including general unsecured claims, are satisfied. The restitution funds will include approximately $290 million from MF Global UK Limited, which is in special administration in London.

Statement and other defendants. Gretchen Lowe, acting director of the CFTC’s Division of Enforcement, stated in a press release today, “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 litigation continues against MF Global Holdings Ltd., Corzine, and O’Brien.

The case is No. 11-cv-07866.

Attorneys: James B. Kobak, Jr. (Hughes Hubbard & Reed LLP) for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc. Steven Ringer for Commodity Futures Trading Commission

Companies: MF Global Inc.; MF Global Holdings Ltd.; MF Global UK Limited

MainStory: TopStory FraudManipulation CommodityFutures NewYorkNews

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