Former MF Global executives, including former New Jersey Gov. Jon Corzine, will pay $64.5 million to settle claims that they cheated investors by touting the brokerage’s financial health before its fall 2011 collapse, during which $1.6 billion worth of customer money went missing. The proposed settlement would include Corzine and executives Henri J. Steenkamp and J. Randy MacDonald, as well as directors David P. Bolger, Eileen S. Fusco, David Gelber, Martin J.G. Glynn, Edward L. Goldberg, David I. Schamis, and Robert S. Sloan. The Defendants were accused of lying to investors about the company’s financial stability by, for example, issuing a financial statement in May 2011 saying the firm had established a “global, robust risk-management environment” to manage all aspects of its risks.
MF Global collapsed in the fall of 2011 after Moody’s slashed its credit rating to nearly junk status based on catastrophic “wrong-way bets on European sovereign debt.” About $1.6 billion in customer money vanished, resulting in investigations by the U.S. Commodity Futures Trading Commission (CFTC), U.S. Department of Justice and other federal regulators.
The settlement, which requires approval from a judge, will be paid by way of insurance and not directly by the Defendants. MF Global’s directors and officers insurance was being rapidly depleted by costs of defending and resolving numerous related litigations. The personal assets of the individual Defendants were insufficient to cover any expected judgment. This is the third blockbuster settlement reached with parties closely involved with MF Global’s affairs.
In December, seven investment banks that underwrote MF Global stock and debt offerings reached a $74 million settlement over claims they misled investors about the firm’s financial health by offering documents that allegedly concealed the dire liquidity pressures that ultimately felled the derivatives and commodities brokerage. The settlement covers Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co., JP Morgan Securities LLC, Merrill Lynch Pierce Fenner & Smith Inc. and RBS Securities Inc., all of which underwrote a June 2010 secondary stock offering. In April, auditor PricewaterhouseCoopers LLP agreed to pay $65 million to settle with MF Global customers who accused PwC of negligently failing to identify the bankrupt brokerage’s alleged scheme to deceive investors about its financial stability.
The New York federal judge overseeing the 12 consolidated class actions put the Virginia Retirement System and Her Majesty the Queen in Right of Alberta – the largest victims – in the leadership role in January 2012, noting that they suffered a loss of nearly $19 million in MF Global securities transactions, more than any of the other Plaintiffs vying for the role.
The first of the class actions was filed in November 2011, when MF Global shareholder Joseph DeAngelis sued the bankrupt broker-dealer’s executives, saying they deceived investors about the company’s financial stability. It’s alleged that after its debt was downgraded, the company had issued a false statement claiming Corzine had bolstered MF Global’s risk-management practices since becoming CEO in March 2010.
Separately, in the CFTC’s suit against Corzine, the former governor recently said he is seeking evidence to support the CFTC’s contention that there were “at least 100” improper transfers of segregated customer cash during the October 2011 downfall of MF Global, which imploded after revelations the firm had amassed a $6.3 billion bet on troubled European debt. Amid this collapse, the firm also dipped into accounts holding segregated customer accounts, causing about $1.6 billion in customer cash to disappear, according to the firm’s bankruptcy trustee.
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