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Published June 28, 2013, 10:01 AM

Civil charges announced against MF Global executive Corzine

NEW YORK — Nearly two years after Jon S. Corzine watched his brokerage firm implode, federal regulators have sued the former MF Global chief executive over the firm’s misuse of customer money during its final days, a stinging blow to the onetime titan of Wall Street and Washington.

By: Ben Protess , New York Times New Service

NEW YORK — Nearly two years after Jon S. Corzine watched his brokerage firm implode, federal regulators have sued the former MF Global chief executive over the firm’s misuse of customer money during its final days, a stinging blow to the onetime titan of Wall Street and Washington.

The Commodity Futures Trading Commission, the federal agency that regulated MF Global, announced civil charges against Corzine on Thursday, claiming he failed to prevent a lower-level MF Global employee from transferring customer money to banks and clearinghouses. The agency also announced a lawsuit against that employee, Edith O’Brien, who oversaw the transfer of customer money from the firm’s Chicago office.

The lawsuit, filed in U.S. District Court for the Southern District of New York, cites internal MF Global emails and recorded phone calls that shed light on the chaos surrounding the firm. In one call recorded by the firm, for example, O’Brien acknowledged to a colleague that the firm was “skating on the edge,” without “much ice left.”

While the agency did not accuse Corzine of authorizing the breach of customer money, it claimed that he failed to “diligently supervise” the firm and is subject to control person liability, a legal provision that allows for the punishment of executives for the bad acts of lower-level employees.

In suing Corzine, the agency took a rare hard line stance against a Wall Street executive, setting up a protracted legal battle that could drag on for years. The case, perhaps the most prominent action to be filed in the trading commission’s 40-year history, will thrust the once-obscure agency onto its biggest stage.

“This is a bellwether case for the commission following an exhaustive investigation,” said Bart Chilton, a commissioner at the agency who has railed against the breach of customer accounts since the firm’s bankruptcy on Halloween 2011.

Corzine has indicated that he will fight the charges. In a statement, a spokesman for Corzine denounced the trading commission for planning to file what he called an “unprecedented and meritless civil enforcement action.” The spokesman for Corzine, Steven Goldberg, said the trading commission’s anticipated lawsuit “is not surprising considering the political pressure to hold someone liable for the failure of MF Global,” the largest Wall Street bankruptcy since the 2008 financial crisis.

A lawyer for O’Brien, Evan Barr, did not immediately comment on the case.

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