NEW YORK, Nov 2 (Reuters) - If the Federal Bureau of Investigation turns up evidence that MF Global Holdings Ltd improperly mixed customer accounts and its own funds, it would
still be difficult to prosecute the firm's CEO, Jon Corzine, on
criminal charges, legal experts said.
After MF Global filed for Chapter 11 bankruptcy on Monday,
regulators said a large amount of customer funds were
unaccounted for. Reuters also has reported that the FBI is
showing preliminary interest in regulatory probes looking into
the missing funds.
Neither MF Global nor Corzine have been charged with any
But if customer funds have disappeared, it could be grounds
for criminal charges against individual officers of the firm
under the mail and wire fraud statutes, according to Jeff
Ifrah, a white-collar criminal defense lawyer in Washington,
One potential theory the government could pursue would be
that MF Global induced investors to open accounts with the firm
under the false premise that their accounts would be kept
separate from the firm's operating accounts. To charge Corzine
himself on that theory, the government would have to prove that
he acted with some knowledge of the alleged scheme and intended
to defraud investors.
Executives at Corzine's level are not often charged in such
schemes, according to defense attorneys.
"It's rare that a person in his position is charged, unless
they were the ones making off with the money," said Jonathan
Uretsky, a New York-based securities lawyer who also represents
defendants in white-collar cases.
Criminal charges are not the only possible liability. He
could face civil charges from regulators such as the U.S.
Securities and Exchange Commission or the U.S. Commodities
Futures Trading Commission, according to legal experts.
From the CFTC, the most likely charge against Corzine would
be that he violated a rule requiring diligent supervision of
commodity accounts, said Jerry Markham, a professor at Florida
International University. If a regulatory rule is violated, the
CFTC could issue a fine.
"The head of the firm can delegate supervision authority
but there is a residual obligation that he make sure that
what's being delegated is carried out," said Markham.
In past cases involving mingling of funds at brokerage
firms, the SEC has also brought charges under various
securities laws, said Thomas Gorman, a partner at Dorsey &
Whitney. But he said there was no precedent for a case of
alleged mingling of funds at such a large institution.
"Usually you see this allegation as part of a Ponzi scheme
or a variation of it," said Gorman. "I find it a surprising
allegation for a major brokerage house to commingle the money
Finally, Corzine could face private lawsuits by investors
in MF Global securities and investors who held accounts at the
firm. Reed Kathrein, a partner at the law firm Hagens Berman,
said he has already been in contact with potential
Kathrein said that if lawsuits against Corzine are filed,
they will likely come from investors in MF Global's shares and
bonds who claim they were misled by the firm's various
disclosures about its internal controls. He also said that
account holders whose funds have gone missing could make claims
against Corzine under a variety of state laws, such as breach
of fiduciary duty and breach of contract.
(Reporting by Andrew Longstreth and Suzanne Barlyn)
Follow us on Twitter: @ReutersLegal