Corzine Seeks Dismissal Of Legal Case Before All Evidence Is Heard

Entering the 12th round of the heavyweight fight the force of which has never before been seen, former MF Global CEO Jon Corzine and the Commodity Futures Trading Commission are engaging in a war of words over what is among the regulator’s most important customer protection rules. Corzine’s lawyers say there is “no principle of law or logic” behind the CFTC’s case against him and he should not stand trial on charges of breaking customer account segregation rules. The CFTC, on the other hand, says it has an “open and shut case” against the former Goldman Sachs chief and New Jersey Governor and U.S. Senator.

Corzine seeks summary judgment to dismiss what is perhaps the most watched case in CFTC history

Before the public has seen all the evidence, Corzine’s lawyers want New York Federal Judge Victor Marrero to issue a pretrial ruling that the CFTC has no case against him. The CFTC is standing firm and in rather clear language says that it has an “open and shut case” against Corzine, The Wall Street Journal is reporting.

The issue is over much more than who is to “blame” for the October 31, 2011 collapse of the brokerage firmwhere $1.6 billion of customer funds was reported missing when the dust settled. At issue is what the CFTC claims was an “unprecedented” act that was an “unlawful” violation of what some say are its most sacred customer protection laws. Will Corzine, arguably one of the most politically powerful Wall Street executives in history, be held to the same legal standard as other market participants?

Corzine lawyers say its not his fault, pointing to the bankruptcy trustee

In a Dec. 18 letter to Judge Marrero reported in the Journal, Corzine’s lawyers claim never directed, authorized or encouraged the use of funds in segregated accounts and wasn’t aware of the “transgression” until Oct. 30, 2011.  Shortly after the failure of MF Global, Corzine repeatedlytold Congress he “simply did not know where the money is or why the accounts have not been reconciled.”

According to the CFTC, customer funds were used to support MF Global’s operations as it met margin call obligations, a clear violation. Regulatory guidelines mandate that when customer funds are transferred out of a custodian bank, they are clearly marked as customer segregated funds so that all the fiduciaries involved in the transaction are aware. Violating this cardinal rule, considered by some in brokerage management quarters as a most serious fiduciary breach, has led to criminal convictions in the two previous cases. CFTC customer segregation rules have rarely been broken and strong deterrence has been one key to the regulator’s success.

In the letter, Corzine’s lawyers seemed to paint a picture that he is being blamed for all the ills at the company. The CFTC, however, is charging that he broke very specific rules in what is likely among its most historic cases. Rather than point the finger at Corzine, his lawyers claim that “machinations” by court-appointed bankruptcy trustee James Giddens are to blame for a delay in customers receiving their segregated deposit funds returned. Giddens was appointed after the bankruptcy to represent MF Global account holders had their assets illegally transferred from segregation. MF Global customers eventually had all their assets returned after a protracted fight.

Judge Marrero, who was appointed by President Bill Clinton in 1999, has been involved in numerous high profile cases in the Southern District of New York. He is known for striking down elements of the USA Patriot Act where he said the act “offends the fundamental constitutional principles of checks and balances and separation of powers” as well as ruling over the approval of a settlement involving insider trading with billionaire Steven A. Cohen.

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