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Corzine suit would implicate workers

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A regulator considering charges against former MF Global Chairman Jon Corzine likely would seek '“injunctive relief” to prevent Corzine from returning to the brokerage business, according to an industry expert.

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By Reuters
Tuesday, June 25, 2013, 6:27 p.m.
 

NEW YORK — The lawsuit that the U.S. Commodity Futures Trading Commission is considering filing against MF Global chief executive Jon Corzine would require the agency to charge other former MF Global employees, legal experts said on Tuesday.

The agencyis preparing to recommend to its commissioners that a civil complaint against Corzine be filed in federal court, a person familiar with the matter said. The potential suit was first reported by The New York Times.

Two former agency officials, one of whom declined to be named, said other people who were working at MF Global when the brokerage firm collapsed in October 2011 will have to be charged if the commission plans to accuse Corzine, a former New Jersey governor, of violating his responsibilities as the person in control of the firm.

MF Global made a $6.3 billion bet on European sovereign debt and went bankrupt after dipping into customer accounts to try to meet margin calls, a violation of industry rules.

Under the legal concept of a “control person,” a violation occurs when the person in charge — Corzine in this case — does not stop those under his control from illegal acts. For Corzine to be liable, people under his control would have to be charged with wrongdoing, such as inappropriately transferring customer money into the firm's accounts.

The person familiar with the matter said the commission would consider accusing Corzine of failing to meet his responsibilities as a person in control, as prescribed by the Commodity Exchange Act. According to the act, the CFTC must prove he “did not act in good faith or knowingly induced, directly or indirectly, the act or acts constituting the violation.”

“If you're going to charge him under that, you're basically holding him responsible for the violations of somebody else,” said Gary DeWaal, a former general counsel for the brokerage NewEdge who served as a senior trial attorney for the agency's enforcement division.

DeWaal said the commission would likely seek “injunctive relief” to prevent a later action, most likely Corzine's return to the brokerage business. This would not rule out the regulator seeking financial penalties.

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