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Financial Fraud Law

Court Orders MF Global to Pay over $1 Billion in Restitution to Its Customers

 A federal court has entered an order on consent against MF Global Inc. requiring it to pay $1.212 billion in restitution to customers of MF Global to ensure that the customers recover their losses sustained when MF Global failed in 2011.

The order, entered by U.S. District Court Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million 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. The trustee for MF Global obtained permission from the bankruptcy court to pay restitution in full to customers to remedy any shortfall with funds of the MF Global general estate.

The consent order arises out of a complaint filed by the U.S. Commodity Futures Trading Commission charging MF Global and 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 litigation continues against the remaining defendants, including former U.S. Senator Jon S. Corzine.

Gretchen Lowe, Acting Director of the CFTC’s Division of Enforcement, stated, “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 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 alleged 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 regulation, 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.

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