Posted on 24 Oct 2012 by Neilson
Lawyers for former MF Global Holdings Ltd. Chief Executive Jon Corzine are asking a federal judge to toss a civil fraud lawsuit accusing him of misleading investors about the risky bets the futures firm was taking before its collapse a year ago.
Mr. Corzine's lawyers blasted the investors' suit as a "jumble of assertions and accusations" that makes "no sense" that should be dismissed in a filing Friday in U.S. District Court in New York. A group of banks and underwriters-among them units of Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Citigroup Inc. that are also being targeted by the investors joined Mr. Corzine in asking Judge Victor Marrero to throw out the lawsuit.
Mr. Corzine, a former co-chairman of Goldman Sachs who later became a U.S. Senator and then a governor of New Jersey, resigned from MF Global last autumn, just days after the brokerage's collapse on Halloween over its losing bets on European sovereign debt revealed a $1.6 billion hole in its books.
Investors, now led by Virginia Retirement System, sued Mr. Corzine, other company executives and the banks that backed the trading firm, claiming they failed to disclose the risks associated with MF Global's European sovereign debt trades using repurchase-to-maturity transactions.
While MF Global may have mismanaged trades, Mr. Corzine's lawyers say, they contend he didn't hide the risks or mislead investors about the firm's risk appetite or liquidity.
"In the first place, none of Mr. Corzine's public statements was false or misleading in the context of MF Global's public disclosures," his lawyers said.
Indeed, the investors' claim that Mr. Corzine participated in a fraud "makes no sense" because, just two months before the company collapsed, he bought over 50,000 shares of MF Global stock on the open market. His lawyers argue Mr. Corzine's stock purchase belies the investors' claim that he sought to defraud them.
As lawyers for the banks that underwrote MF Global's securities noted, trading firms can go under without fraud.
"Companies sometimes fail because of unsuccessful business strategies," said lawyers for the underwriters. "However regrettable that reality, courts long have taught that such failures alone do not give rise to claims under the federal securities laws."
Mr. Corzine's large bets on bonds of troubled European countries panicked investors and led to the firm's undoing. As MF Global frantically tried to sell assets and negotiate a rescue deal, the firm dipped into customer funds that aren't supposed to be touched under federal regulations.
He testified before Congress last year that he was unaware of a shortfall in customer assets at MF Global until hours before its bankruptcy filing.
The Justice Department and regulators at the Commodity Futures Trading Commission and Securities and Exchange Commission have looked into MF Global's demise to determine if there was any intent to remove money from customer accounts that should have been kept separate from the firm's own funds under federal rules. To date, neither Mr. Corzine nor others at MF Global have been charged with a crime.