NEW YORK (CBSNewYork/AP) – The trustee in the MF Global Holdings bankruptcy case has sued ex-CEO Jon Corzine and other former executives, alleging that they “failed to act in good faith” while running the company.
The lawsuit, filed Monday in bankruptcy court in New York, says Corzine and two other top executives “dramatically changed” the company’s business plan after he became CEO in 2010. They then failed to update controls and other systems that were already weak, the lawsuit says.
Corzine pushed the company into making big bets on bonds issued by European countries, a move that proved disastrous during the implosion of the debt crisis the following summer.
According to the lawsuit, the company’s controls were so poor that it couldn’t determine its liquidity levels in real time, a weakness that ultimately contributed to the company’s collapse in October 2011. It portrays Corzine and others as executives who were aware of the risks but purposefully ignored them. Corzine, who stepped down as MF Global CEO soon after the collapse, is the former co-chairman of Goldman Sachs, a former Democratic U.S. senator and the former governor of New Jersey.
Corzine and two of his top executives, the chief operating officer and the chief financial officer, “were repeatedly warned – in reports, meetings, emails, and in-person exchanges – of the failures and need for improvements in the company’s procedures and controls,” the lawsuit says. “Yet, instead of taking necessary steps to fix those problems,” the suit says Corzine and his deputies “pursued an even riskier business plan.”
The lawsuit is notable not because of any significant revelations but because it represents an escalation in the battle between Corzine and the bankruptcy trustee, former FBI director Louis Freeh. Freeh is overseeing the wind-down of MF Global Holdings, which means he is trying to recover money for creditors.
The suit seeks “damages in an amount to be determined at trial” and “other and further relief as the Court deems appropriate.”
Earlier this month, Freeh filed a scathing report about Corzine and other executives with many of the same accusations. At the time, he said that he had already prepared a lawsuit against the former executives, but agreed not to file it until first attempting to resolve the issues through mediation. The mediation still continues, but Freeh said in a statement Tuesday that he thought it was in the best interest of the creditors to go ahead and file the lawsuit.
A Corzine spokesman at the time of Freeh’s report condemned the portrayal of the former CEO. Steven Goldberg, the spokesman, said the report ignored the fact that banks and other firms that were MF Global’s trading partners failed. They didn’t pay what they owed to MF Global, a key cause of the company’s collapse.
It’s not the first lawsuit against Corzine: MF Global shareholders and customers have also filed complaints. A separate trustee, James Giddens, who is in charge of recovering money for customers of the company’s brokerage operation, MF Global Inc., last year joined the customers’ lawsuit against Corzine and other former executives.
To date about 89 percent of the money has been recovered for U.S. customers of the firm and around 18 percent for foreign customers, according to Giddens.
No one has been charged in the MF Global case. The U.S. Commodity Futures Trading Commission, Congress and a federal grand jury in Chicago have investigated MF Global’s failure and the disappearance of customers’ money.
CFTC Commissioner Bart Chilton said Tuesday that acting as a steward of customer money, as MF Global did, is a “super-serious responsibility.”
“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,” Chilton said in a statement.
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