Jon Corzine Sued by Louis Freeh Over $1B MF Global Collapse

Ex-Senator Pushed Risky Strategy That Wiped Out Fund

getty images

By Reuters

Published April 23, 2013.
  • Print
  • Share Share

Jon Corzine was sued by the bankruptcy trustee liquidating MF Global Holdings Ltd, who accused the former chief executive of negligently pursuing a high-risk business strategy that culminated in the commodities brokerage’s destruction.

The trustee, Louis Freeh, said in the lawsuit that Corzine and two top deputies overhauled MF Global’s business without addressing “systemic weaknesses” in oversight and monitoring.

Freeh said the officials breached their fiduciary duties to shareholders and failed to act in good faith, wiping out more than $1 billion in value by the time of MF Global’s Oct. 31, 2011, bankruptcy.

“The company’s procedures and controls for monitoring risk were lacking and in disrepair,” Freeh said in the lawsuit, filed Monday night in U.S. Bankruptcy Court in Manhattan. “Corzine engaged in risky trading strategies that strained the company’s liquidity and could not be properly monitored.”

The lawsuit seeks unspecified damages that could be used to pay creditors of MF Global, whose bankruptcy remains one of the 10 largest in U.S. history according to BankruptcyData.com.

Corzine is a former Goldman Sachs chairman and former Democratic governor and senator from New Jersey.

The other defendants are Bradley Abelow, who was MF Global’s chief operating officer, and Henri Steenkamp, its former chief financial officer.

FREEH REPORT

Corzine spokesman Steven Goldberg called the lawsuit a case of “Monday morning quarterbacking” filled with “seriously flawed allegations,” and said there was no basis to claim that Corzine breached his fiduciary duties or was negligent.

Abelow’s lawyer, Gary Naftalis, said the allegations lack any factual or legal basis, and that his client “did not cause any losses or contribute in any way to the collapse of the company.”

Lee Richards, a lawyer for Steenkamp, was not immediately available for comment.

The extent to which insurance might cover any payouts was not immediately clear. Last April, U.S. Bankruptcy Judge Martin Glenn in Manhattan said Corzine and other officials may tap insurance money to defend against lawsuits.

Freeh’s lawsuit echoes criticisms he raised in an April 4 report on MF Global’s collapse. He said at the time that he planned to file the lawsuit, but agreed to wait pending mediation with Corzine, including over a separate securities class-action lawsuit.

Corzine’s spokesman said mediation is continuing. A lawyer for Freeh did not immediately respond to a request for comment.

FAILED TRANSFORMATION

Corzine had sought to transform MF Global into a global investment bank, with a strategy that included a $6.3 billion bet on sovereign debt of countries such as Belgium, Ireland, Italy, Portugal and Spain.

But as Europe’s economy weakened, MF Global was forced to meet margin calls, and regulators learned that money in customer trading accounts had been used to cover liquidity shortfalls.

The end came after the European sovereign debt wager and high leverage ratio spooked markets and credit rating agencies. But Freeh said MF Global even then missed opportunities to curb its losses.

MF Global came under more intense scrutiny, including in Washington, after about $1.6 billion went missing from commodities customers’ accounts.

But much of the money has been recovered, and James Giddens, the trustee recovering money for those customers, has said he expects to recover 93 percent of their funds.

In a statement on Tuesday, Giddens said his office also saw potential legal claims against Corzine and others, but chose to join the existing class-action litigation “because it was the most efficient way to get money to customers and creditors.”

On April 5, the Manhattan bankruptcy court approved MF Global’s liquidation plan, with unsecured creditors recovering as much as 34 cents on the dollar.

Federal regulators including the Commodity Futures Trading Commission are still examining MF Global’s collapse, but have not accused Corzine of wrongdoing.

“Anyone who violates the law, and particularly anyone at MF Global who used a billion bucks of customer cash that should have been protected, should be punished appropriately,” CFTC Commissioner Bart Chilton said in a statement discussing Freeh’s lawsuit.

In the wake of MF Global’s collapse, the CFTC proposed new rules to better protect client funds and improve oversight by the commodities industry’s self-regulatory bodies, CME Group Inc and the National Futures Association.


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • Lusia Horowitz left pre-state Israel to fight fascism in Spain — and wound up being captured by the Nazis and sent to die at Auschwitz. Share her remarkable story — told in her letters.
  • Vered Guttman doesn't usually get nervous about cooking for 20 people, even for Passover. But last night was a bit different. She was cooking for the Obamas at the White House Seder.
  • A grumpy Jewish grandfather is wary of his granddaughter's celebrating Easter with the in-laws. But the Seesaw says it might just make her appreciate Judaism more. What do you think?
  • “Twist and Shout.” “Under the Boardwalk.” “Brown-Eyed Girl.” What do these great songs have in common? A forgotten Jewish songwriter. We tracked him down.
  • What can we learn from tragedies like the rampage in suburban Kansas City? For one thing, we must keep our eyes on the real threats that we as Jews face.
  • When is a legume not necessarily a legume? Philologos has the answer.
  • "Sometime in my childhood, I realized that the Exodus wasn’t as remote or as faceless as I thought it was, because I knew a former slave. His name was Hersh Nemes, and he was my grandfather." Share this moving Passover essay!
  • Getting ready for Seder? Chag Sameach! http://jd.fo/q3LO2
  • "We are not so far removed from the tragedies of the past, and as Jews sit down to the Seder meal, this event is a teachable moment of how the hatred of Jews-as-Other is still alive and well. It is not realistic to be complacent."
  • Aperitif Cocktail, Tequila Shot, Tom Collins or Vodka Soda — Which son do you relate to?
  • Elvis craved bacon on tour. Michael Jackson craved matzo ball soup. We've got the recipe.
  • This is the face of hatred.
  • What could be wrong with a bunch of guys kicking back with a steak and a couple of beers and talking about the Seder? Try everything. #ManSeder
  • BREAKING: Smirking killer singled out Jews for death in suburban Kansas City rampage. 3 die in bloody rampage at JCC and retirement home.
  • Real exodus? For Mimi Minsky, it's screaming kids and demanding hubby on way down to Miami, not matzo in the desert.
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.