The man who could barely recall anything at his various Congressional hearings, has no problem with remembering one key aspect of the MF Global bankruptcy: Jon Corzine is innocent! And, as a result, yesterday his lawyers filed a motion to dismiss a civil case brought against him by the CFTC in which the legal team shows that the best defense is a good offense and openly critiques the commodities regulator. DealBook excerpts from the filing: “There is no evidence demonstrating that Mr. Corzine knowingly directed unlawful conduct or acted without good faith,” wrote the lawyers from Dechert, Andrew J. Levander and Benjamin E. Rosenberg. “Rather than acknowledge that reality and move on, the C.F.T.C. has clung to its baseless presumptions and manufactured charges of wrongdoing that are supposedly connected to Mr. Corzine.” Right: the commingling just happened on its own. Twas but a glitch.
The commission did not accuse Mr. Corzine of authorizing the breach of the customer money, or even knowing that the wrongdoing had happened. Instead, the suit hinges on his supposed failure to “diligently supervise” the firm as it raided the client accounts. The suit also argues that Mr. Corzine was subject to so-called control person liability, a legal provision that allows for the punishment of executives for the acts of lower-level employees like Ms. O’Brien.
In the motion to dismiss the case, Mr. Corzine’s lawyers raised doubt about that charge. To prevail on the charge, the commission must show that he had a responsibility to oversee Ms. O’Brien, which the lawyers dispute.
“No C.E.O. of an entity with operations around the globe and thousands of employees can be accurately described as the ‘supervisor’ of every employee and transaction,” the lawyers said.
Or of himself, for that matter: after all why would anyone possibly believe the CEO of a Primary Dealer would know anything about such a thing as segregated customer accounts: he obviously had more important presidential fundraising duties to be worried about. Actually, we are not kidding:
Mr. Corzine’s lawyers object to the commission’s attempt to link him, even tangentially, to the breach of customer money. The commission declared that Mr. Corzine “did not direct anyone to determine whether” MF Global was raiding customer accounts, his lawyers said, but stopped short of claiming that he had “any reason to believe” that the money was in jeopardy.
What is worse for the line up of gullible investors willing to lose even more money if and when Corzine finally launches his hedge fund, a protracted litigation may preclude such plans prematurely:
Although Mr. Corzine could strike a settlement with the government, the motion on Tuesday could foreshadow a lengthy clash. If found liable at trial, Mr. Corzine could face fines and a ban from trading commodities. Mr. Corzine, whose passion for trading made him a star at Goldman Sachs and continues to occupy him even now, is expected to fight any such penalty.
At one time, his fate seemed even more precarious. MF Global’s collapse set off a wave of scrutiny from regulators as well as prosecutors and the F.B.I. Now, with Mr. Corzine no longer drawing scrutiny from the criminal authorities, the commission is the most active threat.
We will, however, give the lawyers one thing: they are correct in crticizing the CFTC:
Mr. Corzine’s lawyers took aim at the government’s prose. The commission’s complaint featured “rambling hindsight criticisms,” the lawyers said, to say nothing of the “confusing amalgam of accusations.”
Here they are right – because if Corzine was at fault in allowing his firm to go bankrupt due to greed, and a failed attempt to mask the aftermath of a huge bet gone horribly wrong, just where was MF Global’s regulator. And not just the CFTC, but also the Federal Reserve itself – last we checked MFG was the 21st Primary Dealer the moment it filed. Maybe the Fed was too busy giving MF Global an A+ grade on its latest stress test at the time of bankruptcy? We will never know.