Failed derivatives trading firm MF Global Inc. and its former CEO, Jon Corzine, were charged by U.S. regulators Thursday with allegedly misusing almost US$1 billion in client funds in the days leading up to the firm’s collapse in late 2011.

MF Global agreed to settle the allegations that were filed against it today by the U.S. Commodity Futures Trading Commission (CFTC) in the U.S. District Court for the Southern District of New York. It agreed to full restitution of the US$1 billion, and a US$100 million penalty, in a deal that remains subject to approval by the district court and the U.S. Bankruptcy Court.

The CFTC also charged the firm’s former CEO, Corzine, and former assistant treasurer, Edith O’Brien, for their role in the firm’s unlawful use of customer funds that, the CFTC says, “harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale.” Those allegations have not been proven.

According to the CFTC’s complaint, Corzine joined MF Global in March 2010 with a plan to transform the firm into a major investment bank with increasingly risky and larger investments of the firm’s money. However, it says that in the summer and fall of 2011, its need for cash was rising and its sources of cash were diminishing. Eventually, 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 US$1 billion short of customer funds,” it says.

The regulator alleges that Corzine was aware of the firm’s low cash position, but that he directed the firm to continue paying large obligations without inquiring how it could come up with the money. “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,” it says.

O’Brien is charged with aiding and abetting the firm’s misuse of customer funds. It claims that she allowed improper transfers of hundreds of millions of dollars from customer accounts to help meet the firm’s needs, knowing that MF Global did not have sufficient proprietary funds available for those transfers.

The CFTC seeks full restitution and penalties against MF Global Holdings, Corzine, and O’Brien, in addition to trading and registration bans and injunctions against Corzine and O’Brien.

“Turning a profit is not the only job of the person at the top of a CFTC-regulated firm. Particularly in times of crisis, the person in control, like the CEO here, must do what’s necessary to prevent unlawful uses of customer money, so that customers’ money is still there if and when the music stops,” said David Meister, the CFTC’s enforcement director.