Wednesday, 23 July 2014
Last updated 2 hours ago
Nov 13 2013 | 10:39am ET
Former MF Global Holdings head Jon Corzine can't duck a lawsuit by investors in his collapsed futures brokerage.
On Tuesday in Manhattan, U.S. District Judge Victor Marrero rejected Corzine's bid to dismiss investor litigation aimed at holding him and other MF Global executives—as well as 13 banks and financial institutions—responsible for that collapse.
In a 105-page decision, Marrero compared the MF Global blowup to a "massive train wreck” and rejected the defendants' claim that the firm's bankruptcy was beyond their control and not the result of securities fraud.
"Defendants seem convinced that no one named in this lawsuit could possibly have done anything wrong," wrote Marrero. "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.'"
Javier Bleichmar, a partner at Labaton Sucharow, told FINalternatives MF Global's 'stuff happens' defense was “directly contradicted by the facts alleged in the complaint which showed that defendants actively pursued risky investment strategies that were not disclosed to the market, and ignored critical accounting and business procedures that could have prevented the company's demise.”
The lawsuit brings together former MF Global shareholders, including the Virginia Retirement System and the province of Alberta, Canada.
Marrero, who did not rule on the merits of the suit, said the claims carried "an added measure of reliability and plausibility,” drawing, as they did, on investigations by government regulators and Congressional committees into the MF Global bankruptcy.
Bleichmar said the the court's decision “reaffirmed that the federal securities laws have real teeth and that mere boilerplate disclosures of potential risks, when there is internal knowledge of specific dangers, will not insulate parties from liability.
For example, he said, “it is not sufficient to disclose that MF Global's European sovereign debt strategy exposed the company to liquidity risk, generally, when management knew that MF Global was being forced to dip into customers' funds to meet daily liquidity needs.”
Earlier this month, U.S. Bankruptcy Judge Martin Glenn approved MF Global trustee James Giddens' plan to use the remaining funds from the firm's estate to make its customers whole. The roughly 20,000 clients, including many hedge funds, could get the remaining $230 million by the end of the year.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…