Here's a novel approach for U.S. financial regulators: The Commodity Futures Trading Commission has told Jon Corzine's lawyers that it plans to sue him over the collapse of MF Global Holdings -- and this is the unusual element -- without giving him a chance to settle.
The CFTC may approve a suit as soon as this week against the former New Jersey governor and senator who was MF Global's chairman and chief executive officer when it failed in 2011, according to Bloomberg News, which cited a person with direct knowledge of the situation. A spokesman for Corzine, Steven Goldberg, said the move would be "unprecedented and meritless." The story was first reported by the New York Times.
Usually in these sorts of cases, the agency conducts an investigation, tells the target's counsel what it found and how it intends to proceed, then tries to reach a deal. Settled complaints, where the defendants neither admit nor deny the claims, are the norm. And they're usually unsatisfying to the public.
By going straight to litigation, the CFTC is signaling that it wants to make an example of Corzine, and show that some high-profile cases are worth trying to prove in court. The Times said the enforcement division of the CFTC likely would claim that Corzine failed to adequately supervise the firm and should be held liable for the bad acts of lower-level employees as a so-called control person.
Goldberg, Corzine's spokesman, said such accusations were unfounded. “During the difficult final week, Mr. Corzine was never informed, nor was he ever given reason to believe, that customer funds were at risk or were being used improperly,” he said.
MF's demise was a major scandal mainly because of Corzine's celebrity. Before seeking public office, he worked at Goldman Sachs for 24 years, eventually becoming co-head of the company with Henry Paulson, who went on to become Treasury secretary. More than $1 billion of customer funds disappeared during MF's final days. Regulators seem to have concluded that poor internal controls were to blame, rather than fraud.
Corzine's prosecution would inevitably draw fresh attention to the lack of civil or criminal cases against other major Wall Street figures. Nobody from Lehman Brothers, which filed for bankruptcy in 2008, has been fingered by prosecutors or the Securities and Exchange Commission for any violations. My own take has long been that prosecutions against anyone from Lehman, for example, would have been complicated by the fact that many people in senior levels of government were aware before the bank's collapse that its balance sheet was bogus.
Paulson wrote in his 2010 memoir that "the investment bank had been loaded with toxic assets worth far less than the value at which they were carried, creating a capital hole." Meanwhile, he said, Lehman's chief executive officer, Dick Fuld, "was still clinging to his belief in the value of his assets, but he was alone there."
MF Global, by comparison, never posed a systemic threat. Government officials didn't get involved much in its affairs as it spiraled downward. Corzine, as far I can tell, won't be able to say that MF's regulators knew about the company's problems or had blessed its financial reporting. In the grand scheme, he wasn't a major player, but he is a famous one -- and an ideal candidate to be turned into a symbol of Wall Street run amok.
Corzine has plenty of money to fight whatever case the CFTC brings. The Times reported that he wouldn't be linked directly to the missing customer money, but that the commission probably would find other grounds to hold him accountable. He could face multimillion-dollar fines and a ban from the industry. But criminal charges don't seem to be on the table. He'll be fighting for his legacy. Don't look for any quick resolutions. This case could drag on for years.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)