Former chairman and chief executive of MF Global and former New Jersey Governor Jon Corzine. (Alex Wong/Getty Images)

Federal regulators on Thursday sued Jon S. Corzine, the high-profile leader of the brokerage firm MF Global, accusing him of enabling the unlawful use of about $1 billion of his customers’ funds in a desperate attempt to save a failing business.

In the civil complaint, the Commodity Futures Trading Commission also alleged that Edith O’Brien, MF Global’s former assistant treasurer, directed the transfers knowing they were illegal. The CFTC is seeking to ban Corzine and O’Brien from the futures industry and impose penalties on both for their role in the company’s collapse.

While the duo is fighting the charges, MF Global’s brokerage unit agreed to settle. It plans to pay back the nearly $1 billion that customers lost on Oct. 31, 2011, when the parent company filed what ranks as one of the nation’s largest bankruptcies. The agreement, which awaits bankruptcy court approval, also calls for a $100 million penalty.

MF Global filed for bankrupcty protection after making a disastrous decision to invest heavily in European bonds. Corzine resigned as chairman and chief executive days later. He has been under scrutiny ever since, with much attention focused on how the money vanished from the firm’s customer funds leading up to the collapse.

The episode marked the spectacular fall of a long-established company and its well-known leader — a Democrat who once co-chaired Goldman Sachs, served one term in the U.S. Senate and then went on to serve four years as governor of New Jersey.

Corzine has consistently denied wrongdoing, even as private lawsuits piled up against him and after a scathing report by a House panel skewered his reckless business strategies.

On Thursday, Corzine’s attorney called the government’s allegations “meritless.”

“After 20 months of thorough investigations by the Department of Justice, two bankruptcy trustees, and the CFTC, no evidence has been found that contradicts Mr. Corzine’s sworn testimony before Congress,” Andy Levander, Corzine’s attorney, said in a statement. “Mr. Corzine did nothing wrong, and we look forward to vindicating him in court.”

O’Brien’s attorney, Evan Barr, declined to comment. MF Global Holdings, the parent company, was also named as a defendant in the suit.

In its complaint, the CFTC cited recorded phone calls it obtained that helped document behind-the-scenes events in the days leading up to the bankruptcy. The agency portrayed Corzine as a leader who had sidelined those who disagreed with his strategies.

After taking over MF Global in March 2010, the CFTC said, Corzine tried to transform it from a brokerage that made money in the futures business to an investment bank that made bets on the debt of struggling European countries. He kept sinking larger amounts of money into riskier investments, and the firm’s cash sources began to dry up.

In late 2010, the firm’s chief risk officer warned Corzine and the board of directors of the potential risks to the firm, the government’s complaint said. Corzine and others then decided to replace the executive, who left MF Global in March 2011.

The CFTC alleged that later that year, as the company’s finances worsened, the firm’s treasurer relayed the company’s “grave” situation to the chief risk officer and another employee, and told them: “We have to tell Jon that enough is enough. We need to take the keys away from him.”

Corzine, the complaint said, nicknamed the treasurer “Gravedigger.”

Despite repeated warnings about the firm’s liquidity crisis, Corzine did not take adequate steps to ensure that the firm’s draws of cash did not lead to unlawful use of customer funds, the CFTC said. Corzine “either did not act in good faith or knowingly induced the violations.”

In the last week of October 2011, a dismal earnings report helped downgrade the firm’s debt to junk status, setting off something akin to a run on a bank. The CFTC said O’Brien and her staff then directed the transfer of money out of customer accounts.

In a recorded phone call, O’Brien said it “could be game over” from a regulatory perspective if the funds were not promptly returned to the customer accounts.