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Court orders MF Global to pay £750m redress

The Federal Court in New York has ordered MF Global Inc to pay $1.21bn (£750m) in redress to its customers following allegations the firm used client cash for theirown needs prior to MF Global failing in 2011.

The federal court consent order, obtained by the US Commodity Futures Trading Commission also imposed a $100m (£61m) 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.

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The consent order arises out of the CFTC’s complaint, filed on 27 June, charging MF Global and the other defendants, including chief executive Jon Corzine and Edith O’Brien, MF Global’s former assistant treasurer, with unlawful use of customer funds.

In June 2013, MF Global agreed to settle all charges against it, including full restitution of the approximately $1bn (£620m) lost by all commodity customers when the firm failed on 31 October 2011.

In the last week of October 2011, with virtually no other sources of immediate cash to turn to, the firm repeatedly and unlawfully used customer funds for firm needs, ultimately leaving it nearly $1bn short of customer funds.

In that last week, Mr Corzine is alleged to have been aware of the firm’s true low cash balance, even as he directed the firm to continue paying large obligations without inquiring how the firm could come up with the money to do so.

Mr Corzine is charged for the firm’s violations as an MF Global “control person” who, among other things, did not act in good faith and is also charged with violating his legal obligations to diligently supervise.

Ms O’Brien is charged with aiding and abetting the firm’s misuse of customer funds.

The CFTC’s litigation continues against the remaining defendants: MF Global Holdings Ltd., Mr Corzine, and Ms O’Brien.

Gretchen Lowe, acting director of the CFTC’s division of enforcement, said: “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 US commodity laws and regulations designed to protect customer funds will be vigorously prosecuted.”