New York - A federal judge on Tuesday rejected a bid by former MF Global Holdings Ltd chief executive Jon Corzine to dismiss investor litigation seeking to hold him, other executives and many banks responsible for the futures brokerage's rapid collapse.
In a sometimes acerbic decision that likened MF Global's demise to a “massive train wreck,” US District Judge Victor Marrero in Manhattan rejected the defendants' contention that the company's October 31, 2011, bankruptcy was beyond their control, and not the product of securities fraud.
“Defendants seem convinced that no one named in this lawsuit could possibly have done anything wrong,” Marrero said in a 105-page decision.
“Defendants' contentions would suggest that ... perhaps the debacle must have been the fateful work of supernatural forces, or else that the explanation for a spectacular multi-billion dollar crash of a global corporate giant is simply that 'stuff happens.'“
Former stockholders and bondholders led by the Virginia Retirement System and the province of Alberta, Canada, accused MF Global of inflating its ability to manage risk, obscuring the risks of its big bet on European sovereign debt, and improperly accounting for deferred tax assets.
While not ruling on the merits, Marrero said the claims carried “an added measure of reliability and plausibility” by drawing from investigations by government regulators and Congressional committees into MF Global's bankruptcy, one of the 10 largest in US history.
Other defendants included former MF Global chief financial officers J. Randy MacDonald and Henri Steenkamp, and seven former independent directors.
The plaintiffs also sued 13 banks and financial institutions, including JPMorgan Chase & Co and Goldman Sachs Group Inc, that helped MF Global raise money by selling stock and bonds.
DIFFERENT RECOVERIES FOR INVESTORS, CUSTOMERS
Corzine is a former governor and US senator from New Jersey, and former co-chairman of Goldman.
He had argued that the allegations suggested that at most he had mismanaged MF Global, was too optimistic, or failed to predict a liquidity squeeze, not that he violated the law.
Corzine also said his ownership of 441,960 MF Global shares, including some bought as late as August 2011, showed he had no motive to commit fraud.
Andrew Levander, a partner at the Dechert law firm who represents Corzine, did not immediately respond to requests for comment.
Lawyers for MacDonald and Steenkamp, and a JPMorgan spokesman, did not immediately respond to similar requests. Goldman spokesman Michael DuVally declined to comment.
MF Global's collapse left about $1.6 billion of customer funds missing.
But on Nov. 5, James Giddens, the trustee unwinding its brokerage unit, won bankruptcy court approval for a plan to close the remaining shortfalls, and fully repay thousands of former customers.
The investor lawsuit, which seeks class-action status, covers investors in MF Global common stock, convertible bonds and senior notes between May 20, 2010, and Nov. 21, 2011.
“It's a good decision, and hopefully will allow us to obtain some recoveries for the class,” said Salvatore Graziano, a partner at Bernstein Litowitz Berger & Grossmann representing the investors. “Unlike the customers, the investors here have received no recovery whatsoever.”
The law firm Labaton Sucharow also represents investors in the case.
MF Global's demise has also led to civil lawsuits against Corzine by the Commodity Futures Trading Commission and by Louis Freeh, the trustee who wound down the parent company.
The US Department of Justice also opened a probe into MF Global. No criminal charges have been brought.
The case is DeAngelis et al v. Corzine et al, US District Court, Southern District of New York, No. 11-07866. - Reuters