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2016-10-06 22:32:37
5 Years Later, Jon Corzine May Avoid Trial With $5 Million Settlement

WASHINGTON — Nearly five years after Jon S. Corzine presided over the collapse of the brokerage firm MF Global and became a target of federal investigations, his legal ordeal might be drawing to a close.

In recent weeks, Mr. Corzine and the federal regulatory agency that sued him have struck a tentative agreement to settle the case, according to people briefed on the matter. The agency, the Commodity Futures Trading Commission, which sued Mr. Corzine in 2013 over MF Global’s collapse and misuse of $1 billion in customer money, could announce a deal by the end of this year if the agency’s three commissioners approve it.

Should that happen, the settlement would avert a high-profile trial that almost certainly would have led Mr. Corzine, a 69-year-old former Democratic United States senator and New Jersey governor, to testify. The trial was originally scheduled to begin this month in the United States District Court in Manhattan.

The contours of a settlement, which has not yet been completed, would include Mr. Corzine paying about $5 million in penalties, the people briefed on the matter said. That sum is much greater than what the agency could expect to win at trial if he were found liable.

The agency also plans to force Mr. Corzine, who reaped many millions of dollars as a top executive at Goldman Sachs before pursuing a career in politics, to pay the penalty out of his own pocket, making it a sticking point in the negotiations. In many other cases, executives pay federal settlements using insurance money.

In addition to the financial penalty, Mr. Corzine would accept a lifetime ban from personally trading other people’s money in the futures industry, which was MF Global’s bailiwick. The ban would also level a symbolic blow to someone who, despite his history as an elected official and co-chief of Goldman Sachs, is a trader at heart.

In pursuing such a well-known case involving a prominent figure, the agency has been careful to be seen as tough but fair. In recent weeks, the C.F.T.C. strengthened the deal after some of the agency’s own commissioners questioned it, one of the people briefed on the matter said.

Even so, the settlement would put to rest the last major liability facing Mr. Corzine, who already settled much of the private MF Global litigation this summer. And MF Global customers, including farmers and hedge funds whose accounts were used in the firm’s final days, have since been made whole.

As such, the settlement would offer closure to Mr. Corzine five years after the episode derailed his long Wall Street career and subjected him to federal scrutiny, civil and criminal alike. Although federal prosecutors concluded that there was insufficient evidence of criminal wrongdoing, the C.F.T.C. took aim at Mr. Corzine for not preventing the disappearance of more than $1 billion in customer money.

The agency did not directly link Mr. Corzine to the misuse of the money, but it blamed him for failing to “diligently supervise” the firm as it jeopardized the clients’ accounts. The suit also argued that Mr. Corzine was subject to so-called control person liability, a legal provision that allows for the punishment of executives for the bad actions of lower-level employees.

The agency also sued the lower-level employee accused of “aiding and abetting” the transferring of customers’ money to MF Global’s banks and clearinghouses. That employee, Edith O’Brien, was an assistant treasurer in the firm’s Chicago office.

Ms. O’Brien could present a final twist to settling the case, according to the people briefed on the matter who were not authorized to discuss the private negotiations. The commission has expressed interest in resolving both cases at once, and while Mr. Corzine has all but resolved his liability, Ms. O’Brien is an open question.

A lawyer for Ms. O’Brien declined to comment. A spokesman for the C.F.T.C. declined to comment, as did a spokesman for Mr. Corzine.

At the time the commission filed its case, Andrew J. Levander, Mr. Corzine’s lawyer, denounced what he called “an unprecedented lawsuit based on meritless allegations that Mr. Corzine failed to supervise an experienced back office professional who was located in a different city and who did not report to Mr. Corzine or even to anyone who reported to Mr. Corzine.”

The case may never make it to trial, but the facts surrounding it are dramatic all the same, centering on the final days of MF Global’s existence in October 2011. At the time, Mr. Corzine, who inherited a firm in 2010 that lost money in each of the previous three years, placed a large wager on European sovereign debt that might have returned MF Global to profitability.

Instead, the bet unnerved MF Global’s investors, regulators and ratings agencies. (Eventually, the European bonds, which were sold to other investors, paid out when they matured).

After a series of downgrades, the firm started to unravel. And as MF Global teetered on the brink of collapse, the improper transfers of customer money accelerated.

Although the firm’s demise was rapid, the commission argued that executives failed to heed certain warning signs. In a call recorded by the firm in October 2011, the firm’s global treasurer acknowledged to a colleague that MF Global was “skating on the edge,” without “much ice left,” according to the commission. In another call that month, the global treasurer indicated that the firm’s liquidity “situation” was “not sustainable” and said that “we have to tell Jon that enough is enough. We need to take the keys away from him.” Mr. Corzine nicknamed this person “the Gravedigger.”

On the evening of Oct. 27, 2011, Mr. Corzine was informed that while MF Global had plenty of available assets, only $82 million was in cash. The next morning, he was informed that JPMorgan Chase, one of the firm’s banks, was seeking $134 million to patch an overdrawn account. Minutes later, he told Ms. O’Brien that meeting the bank’s demands was “the most important thing” she could get “done that day.”

And yet, in another email, Ms. O’Brien explicitly stated to Mr. Corzine that the transfer to JPMorgan was a “house wire,” meaning it came from the firm’s accounts, not from customers’.

A settlement of the case would come as Mr. Corzine has started to slowly, and quietly, raise his profile.

He has visited Central America for a humanitarian project involving children and has office space in Midtown Manhattan, where he trades with his own money. Last month, he hobnobbed with Wall Street’s elite at Michael R. Bloomberg’s annual benefit dinner for the National September 11 Memorial and Museum.

And in December, he made a rare public appearance, speaking to a group of students at Fairleigh Dickinson University in Madison, N.J.

“Winning at all costs — it isn’t worth it, it isn’t acceptable,” Mr. Corzine said at the time. “Integrity is fundamental. Excellence and integrity must be pursued hand-in-hand.”