March 28, 2024

DealBook: MF Global’s Trustee Sues Firm’s 3 Top Executives

 Jon Corzine, former chairman and chief executive of MF Global.Alex Wong/Getty Images Jon S. Corzine, former chairman and chief executive of MF Global.

7:23 p.m. | Updated

A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, claiming they were “grossly negligent” in the lead-up to the brokerage firm’s collapse.

The action by the trustee, Louis J. Freeh, comes just weeks after he agreed to postpone the lawsuit and enter mediation with Mr. Corzine. By filing litigation that appeared to catch the MF Global executives off-guard, Mr. Freeh may have jeopardized those talks.

“We question why the trustee chose to file this lawsuit, which is filled with seriously flawed allegations, while he is participating in court-ordered mediation of these very claims,” said a spokesman for Mr. Corzine, Steven Goldberg.

Mr. Freeh, who represents hedge funds and other creditors of MF Global, said on Tuesday that “the mediation process is ongoing,” and that it was “in the best interests of the Chapter 11 estates to file the complaint.”

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The lawsuit, filed in United States Bankruptcy Court for the Southern District of New York late on Monday, echoes a report Mr. Freeh issued this month that blamed MF Global executives for engineering a “risky business strategy” and ignoring “glaring deficiencies” in internal controls. The report and the lawsuit accuse the executives of allowing more than $1 billion in customer money to disappear from the firm.

In the new complaint, Mr. Freeh took aim at Mr. Corzine, a former Democratic senator and New Jersey governor who became MF Global’s chief executive in 2010. Mr. Freeh, a former director of the F.B.I., also sued two of Mr. Corzine’s top deputies: Bradley I. Abelow, the chief operating officer, and Henri J. Steenkamp, the chief financial officer. Mr. Freeh labeled the men as “Corzine’s handpicked deputies.”

“Defendants, in their capacities as officers, breached their fiduciary duties of care, loyalty, and oversight over the company, and failed to act in good faith,” Mr. Freeh wrote.

The action against Mr. Abelow and Mr. Steenkamp is unusual in that both executives remained at MF Global for more than a year after the firm’s collapse, working under Mr. Freeh. They stayed to help sort through the bankruptcy process.

Gary P. Naftalis, a lawyer for Mr. Abelow, noted that Mr. Freeh had himself described that work as “invaluable.” Mr. Naftalis criticized Mr. Freeh for “now making allegations that lack any factual or legal basis.”

Mr. Goldberg, the spokesman for Mr. Corzine, also said the assertions in the suit were unsubstantiated. “There is no basis for the claim that Mr. Corzine breached his fiduciary duties or was negligent,” he said. “We look forward to proving the actual facts in court.”

The suit, which could help Mr. Freeh recover money for MF Global’s creditors, blamed Mr. Corzine for ramping up a risky bet on European debt. While the bonds were not by themselves to blame for the collapse of MF Global, the wager unnerved its investors and ratings agencies, further undermining the firm.

“Corzine engaged in risky trading strategies that strained the company’s liquidity and could not be properly monitored by the company’s inadequate controls and procedures,” Mr. Freeh said.

Mr. Goldberg in turn called the complaint “a clear case of Monday morning quarterbacking.” Mr. Corzine, he said, inherited a firm in 2010 that had lost money in each of the previous three years.

It is unclear whether the lawsuit will alter the mediation talks. While Mr. Freeh said the discussions were continuing, the lawsuit could derail or delay the mediation process.

The litigation might also complicate an effort to return money to customers. Mr. Freeh pursued his own case against Mr. Corzine, rather than join an earlier lawsuit filed by a second MF Global trustee, James W. Giddens, and some of the firm’s customers. Mr. Giddens, who has the task of recovering money for the customers, has already returned about 89 percent of the shortfall to MF Global’s clients in the United States. Some people close to the case say Mr. Giddens has identified a path to potentially making customers whole.

The lawsuit, coming on the heels of a bankruptcy judge approving Mr. Freeh’s plan to liquidate MF Global, could empower him to recover additional money for creditors. But the case might not sit well with customers.

In a statement, Mr. Giddens said he had joined the customers’ class-action lawsuit “because it was the most efficient way to get money to customers and creditors.”

Federal authorities, including the Commodity Futures Trading Commission, also continue to investigate the misuse of customer money. Mr. Corzine has not been accused of any wrongdoing by the agency, and internal e-mails suggest he was not aware that at least some of the customer money was improperly sent to the firm’s banks.

“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,” said Bart Chilton, a member of the trading commission.


This post has been revised to reflect the following correction:

Correction: April 23, 2013

An earlier version of this article misstated when Lehman Brothers collapsed. It was 2008, not 2012.

Article source: http://dealbook.nytimes.com/2013/04/23/mf-global-trustee-sues-corzine-over-firms-collapse/?partner=rss&emc=rss

DealBook: MF Global Trustee Sues Corzine Over Firm’s Collapse

 Jon Corzine, former chairman and chief executive of MF Global.Alex Wong/Getty Images Jon S. Corzine, former chairman and chief executive of MF Global.

4:23 p.m. | Updated

A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, claiming they were “grossly negligent” in the lead-up to the brokerage firm’s collapse.

The action by the trustee, Louis J. Freeh, comes just weeks after he agreed to postpone the lawsuit and enter mediation with Mr. Corzine. By filing litigation that appeared to catch the MF Global executives off-guard, Mr. Freeh may have jeopardized those talks.

“We question why the trustee chose to file this lawsuit, which is filled with seriously flawed allegations, while he is participating in court-ordered mediation of these very claims,” said a spokesman for Mr. Corzine, Steven Goldberg.

Mr. Freeh, who represents hedge funds and other creditors of MF Global, said on Tuesday that “the mediation process is ongoing,” and that it was “in the best interests of the Chapter 11 estates to file the complaint.”

Related Links



The lawsuit, filed in United States Bankruptcy Court for the Southern District of New York late on Monday, echoes a report Mr. Freeh issued this month that blamed MF Global executives for engineering a “risky business strategy” and ignoring “glaring deficiencies” in internal controls. The report and the lawsuit accuse the executives of allowing more than $1 billion in customer money to disappear from the firm.

In the new complaint, Mr. Freeh took aim at Mr. Corzine, a former Democratic senator and New Jersey governor who became MF Global’s chief executive in 2010. Mr. Freeh, a former director of the F.B.I., also sued two of Mr. Corzine’s top deputies: Bradley I. Abelow, the chief operating officer, and Henri J. Steenkamp, the chief financial officer. Mr. Freeh labeled the men as “Corzine’s handpicked deputies.”

“Defendants, in their capacities as officers, breached their fiduciary duties of care, loyalty, and oversight over the company, and failed to act in good faith,” Mr. Freeh wrote.

The action against Mr. Abelow and Mr. Steenkamp is unusual in that both executives remained at MF Global for more than a year after the firm’s collapse, working under Mr. Freeh. They stayed to help sort through the bankruptcy process.

Gary P. Naftalis, a lawyer for Mr. Abelow, noted that Mr. Freeh had himself described that work as “invaluable.” Mr. Naftalis criticized Mr. Freeh for “now making allegations that lack any factual or legal basis.”

Mr. Goldberg, the spokesman for Mr. Corzine, also said the assertions in the suit were unsubstantiated. “There is no basis for the claim that Mr. Corzine breached his fiduciary duties or was negligent,” he said. “We look forward to proving the actual facts in court.”

The suit, which could help Mr. Freeh recover money for MF Global’s creditors, blamed Mr. Corzine for ramping up a risky bet on European debt. While the bonds were not by themselves to blame for the collapse of MF Global, the wager unnerved its investors and ratings agencies, further undermining the firm.

“Corzine engaged in risky trading strategies that strained the company’s liquidity and could not be properly monitored by the company’s inadequate controls and procedures,” Mr. Freeh said.

Mr. Goldberg in turn called the complaint “a clear case of Monday morning quarterbacking.” Mr. Corzine, he said, inherited a firm in 2010 that had lost money in each of the previous three years.

It is unclear whether the lawsuit will alter the mediation talks. While Mr. Freeh said the discussions were continuing, the lawsuit could derail or delay the mediation process.

The litigation might also complicate an effort to return money to customers. Mr. Freeh pursued his own case against Mr. Corzine, rather than join an earlier lawsuit filed by a second MF Global trustee, James W. Giddens, and some of the firm’s customers. Mr. Giddens, who has the task of recovering money for the customers, has already returned about 89 percent of the shortfall to MF Global’s clients in the United States. Some people close to the case say Mr. Giddens has identified a path to potentially making customers whole.

The lawsuit, coming on the heels of a bankruptcy judge approving Mr. Freeh’s plan to liquidate MF Global, could empower him to recover additional money for creditors. But the case might not sit well with customers.

In a statement, Mr. Giddens said he had joined the customers’ class-action lawsuit “because it was the most efficient way to get money to customers and creditors.”

Federal authorities, including the Commodity Futures Trading Commission, also continue to investigate the misuse of customer money. Mr. Corzine has not been accused of any wrongdoing by the agency, and internal e-mails suggest he was not aware that at least some of the customer money was improperly sent to the firm’s banks.

“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,” said Bart Chilton, a member of the trading commission.


This post has been revised to reflect the following correction:

Correction: April 23, 2013

An earlier version of this article misstated when Lehman Brothers collapsed. It was 2008, not 2012.

Article source: http://dealbook.nytimes.com/2013/04/23/mf-global-trustee-sues-corzine-over-firms-collapse/?partner=rss&emc=rss

DealBook: MF Global Put Up for Sale, This Weekend Only

8:13 p.m. | Updated

MF Global is racing to sell itself before the markets reopen on Monday, with its stock and bond prices nearly in a free fall.

The pressures on MF Global, a commodities and derivatives brokerage firm, and its chief executive, Jon S. Corzine — once the chief of Goldman Sachs and a former New Jersey governor — are enormous. With two major credit ratings agencies having cut their ratings on the firm to junk status, a sale of some kind appears to be MF Global’s only hope for survival.

In the space of only a week, MF Global has shed two-thirds of its market value. Its shares plunged 16 percent on Friday to $1.20, after having briefly dipped below $1 earlier in the day. And its five-year bonds tumbled to 49 cents, according to data from Trace research service.

By Friday afternoon, MF Global executives had become focused on selling the entire firm by Sunday evening, according to a person briefed on the matter who spoke on the condition of anonymity because the discussions were private. Other possibilities, including a sale of just its futures brokerage arm, remained on the table but were becoming less likely.

So far, MF Global has identified fewer than five suitors, a list that includes other brokerage, banking and private equity firms, this person said. Yet while the goal remained to strike a deal before the markets resumed on Monday, it is possible that a deal won’t be reached.

Speculation grew on Friday about who would be interested in buying some or all of MF Global. Several major banks have considered making a bid, especially if they could buy the firm’s well-regarded futures brokerage operations at a low enough price, according to people briefed on the matter. But it was unclear whether any would make a formal offer.

A spokeswoman for MF Global, Tiffany Galvin, declined to comment.

By Friday afternoon, MF Global still had sufficient liquidity to finance its operations, having drawn down a $1.3 billion revolving credit facility, this person added. While more clients had moved their money to other brokerage firms, this person said that the amount remained in the low single digits.

That may not matter if the firm cannot reach a sale over the weekend. While major exchanges around the world said on Friday that MF Global remained a member in good standing, clients and trading partners are generally wary of doing business with a junk-rated brokerage firm.

On Friday, analysts and industry executives were gloomy about MF Global’s survival prospects.

“We continue to believe that in this market environment, selling the entire business could be challenging,” Niamh Alexander, an analyst with Keefe, Bruyette Woods, wrote in a research note.

For now, the firm is focused on selling itself rather than preparing for any sort of bankruptcy filing, the person briefed on the matter said.

Jon S. CorzineLucas Jackson/ReutersJon S. Corzine

One thing is clear: Any outcome would spell the end of Mr. Corzine’s tenure atop MF Global. He became the firm’s chief executive last year, returning to the financial sector for the first time in more than a decade after having been ousted as Goldman Sachs’s chief executive in 1999.

Mr. Corzine’s chief goal was to transform MF Global into a full-fledged investment bank, in large part by taking on riskier trading using the firm’s own capital. The strategy backfired, however. In the year and a half since Mr. Corzine took over, the firm has earned money in only two out of six quarters.

Among the biggest millstones around the firm’s neck is the $6.3 billion worth of bonds issued by Italy, Spain, Belgium, Ireland and Portugal that it holds. Analysts became uneasy with those holdings as Europe’s debt crisis deepened, culminating in the initial credit rating downgrade by Moody’s Investors Service on Monday.

MF Global’s problems were exacerbated with its announcement of a $186 million loss for its second quarter on Tuesday. By Thursday, Moody’s and another agency, Fitch Ratings, had officially cut the firm’s credit rating to junk status.

Article source: http://feeds.nytimes.com/click.phdo?i=2c640b6afa77cfcbe53bc1b9be39a184

Media Decoder: Gawker Files Suit, and News of a Dinner is Shared

In apparent reaction to a lawsuit filed by Gawker and the American Civil Liberties Union, the office of the New Jersey governor, Chris Christie, on Monday released a record of a meeting last year between Mr. Christie and Roger Ailes, the chairman of Fox News Channel.

John Cook, a reporter for Gawker, had filed the suit to inquire into Mr. Ailes’s relationship with Mr. Christie as part of a series of stories about the political engagement of Mr. Ailes and his cable news channel. He asserted in an interview that Mr. Ailes, a former Republican strategist, continued to act in that capacity informally and behind the scenes.

The suit came about after Mr. Christie’s office resisted Mr. Cook’s request for public records of any meetings, phone calls or correspondence between the governor and Mr. Ailes. The governor’s office cited “executive privilege,” which Mr. Cook found to be unusual given that Mr. Ailes is the head of a news channel.

The suit was filed Monday morning. Within hours, Mr. Christie’s office sent Mr. Cook a letter that reaffirmed the “executive privilege” defense, but shared the schedule record of one dinner Mr. Christie and Mr. Ailes had on Sept. 11, 2010.

That dinner had previously been reported by New York magazine, which also reported that Mr. Ailes had, at a later date, encouraged Mr. Christie to run for president.

“It’s a mystery why they would invoke executive privilege to conceal such an innocuous document,” Mr. Cook said Monday. He said that the A.C.L.U. would ask the governor’s office to certify in court that it had no other records of communication between the two men. “If they do, we’ll drop the complaint,” he said.

A representative for the New Jersey chapter of the A.C.L.U. did not respond to a request for comment, nor did a representative for Mr. Ailes.

Article source: http://feeds.nytimes.com/click.phdo?i=584d527cfb240c59b4327af0eb3539d3