Federal regulators sued former MF Global CEO Jon Corzine and the brokerage Thursday for allegedly misusing nearly $1 billion in customer funds as the brokerage collapsed in 2011, marking a significant new setback for the nationally known finance executive and ex-Democratic politician.
The lawsuit filed in federal court in New York by the Commodity Futures Trading Commission also targeted former MF Global assistant treasurer Edith O'Brien for her alleged role in the abuse.
MF Global agreed to settle the case by repaying all of the lost customer funds, the CFTC said.
"Turning a profit is not the only job of the person at the top of a CFTC-regulated firm. Particularly in times of crisis, the person in control, like the CEO here, must do what's necessary to prevent unlawful uses of customer money, so that customers' money is still there if and when the music stops," said David Meister, the CFTC.s enforcement chief.
Steven Goldberg, a spokesman for Corzine, called the allegations unfounded and said the former New Jersey governor and senator would "welcome the opportunity to litigate this matter in an impartial venue."
Manhattan-based MF Global's $41 billion bankruptcy is the eighth largest in U.S. history and the biggest Wall Street collapse since the 2008 implosion of Lehman Brothers.
Corzine has been a fundraiser for President Obama and others. He served as CEO of Goldman Sachs during the 1990s before turning to politics and serving as a senator and governor.
MF Global's employees shifted money from farmers, ranchers, hedge funds and other customers to shore up the brokerage's own accounts as the company faced a financial crisis that culminated in an October 31, 2011 bankruptcy filing.
More than $1 billion ultimately went missing as banks and clearing houses held onto the funds over concern about the brokerage's teetering finances.
In a separate lawsuit filed in April, the trustee in the MF Global bankruptcy case sued Corzine and other former executives, alleging that they "failed to act in good faith" while running the brokerage.
The trustee lawsuit charged that the Corzine-led management team knew that the brokerage was unable to determine its liquidity levels in real time, yet ignored the danger.
Corzine became MF Global's leader in 2010 after leaving political office. Drawing on his financial experience, he soon began engineering more aggressive financial strategies designed to raise the firm's flagging fortunes.
The moves included investing an estimated $6 billion in bets on European government debt. The investments initially proved risky amid economic uncertainty over the finances of Greece, Italy and nearby nations in 2010-11.
Corzine sought to reassure Wall Street concern about the investments as he announced an 83-cents-per-share quarterly loss during an Oct. 25, 2011, quarterly earnings call with financial analysts.
But ratings agencies downgraded the brokerage's long-term rating, setting the stage for the bankruptcy filing, Corzine's resignation and investigations by federal regulators and the U.S. Department of Justice began investigating.
Goldberg said the European investments ultimately proved lucrative for the brokerage. In testimony at congressional hearings after the collapse, Corzine said the MF Global's bankruptcy was triggered by a $119.4 million write-off of tax benefits that no longer could be counted as assets.