* Former CEO accused of breach of duties, lack of good faith
* Ex-COO, ex-CFO also sued over October 2011 bankruptcy
* Trustee seeks damages to repay creditors
* Allegations "seriously flawed" -Corzine's spokesman
By Jonathan Stempel
April 23 Jon Corzine was sued by the bankruptcy
trustee liquidating MF Global Holdings Ltd, who
accused the former chief executive of negligently pursuing a
high-risk business strategy that culminated in the commodities
The trustee, Louis Freeh, said in the lawsuit that Corzine
and two top deputies overhauled MF Global's business without
addressing "systemic weaknesses" in oversight and monitoring.
Freeh said the officials breached their fiduciary duties to
shareholders and failed to act in good faith, wiping out more
than $1 billion in value by the time of MF Global's Oct. 31,
"The company's procedures and controls for monitoring risk
were lacking and in disrepair," Freeh said in the lawsuit, filed
on Monday night in U.S. Bankruptcy Court in Manhattan. "Corzine
engaged in risky trading strategies that strained the company's
liquidity and could not be properly monitored."
The lawsuit seeks unspecified damages that could be used to
pay creditors of MF Global, whose bankruptcy remains the
eighth-largest in U.S. history, according to BankruptcyData.com.
Freeh's case adds to legal troubles for Corzine, who faces
lawsuits in U.S. District Court in Manhattan by former
shareholders of MF Global and by former commodity customers of
its brokerage unit. The latter case has drawn support from James
Giddens, the trustee recovering money for commodities customers.
Corzine, 66, is a former Goldman Sachs chairman and
former Democratic governor and senator from New Jersey.
The other defendants in Freeh's lawsuit are Bradley Abelow,
who was MF Global's chief operating officer, and Henri
Steenkamp, its former chief financial officer.
Corzine spokesman Steven Goldberg called Freeh's lawsuit a
case of "Monday morning quarterbacking" filled with "seriously
flawed allegations," and said there was no basis to claim that
Corzine breached his fiduciary duties or was negligent.
Abelow's lawyer, Gary Naftalis, said the allegations lack
any factual or legal basis, and that his client "did not cause
any losses or contribute in any way to the collapse of the
Lee Richards, a lawyer for Steenkamp, did not immediately
respond to requests for comment.
Federal regulators including the Commodity Futures Trading
Commission are still examining MF Global's collapse, but have
not accused Corzine of wrongdoing.
A CFTC spokesman declined on Tuesday to comment.
The extent to which insurance might cover any damage awards
or settlements in the litigation was not immediately clear.
Last April, U.S. Bankruptcy Judge Martin Glenn in Manhattan
said Corzine and other officials may tap insurance money to
defend against lawsuits.
Frederick Grede, the trustee for suburban Chicago futures
brokerage Sentinel Management Group, which failed in 2007, said
some laws could shield assets of Corzine and others, such as
retirement accounts and primary residences, from litigation.
"I don't think Corzine will wind up penniless," he said.
Freeh's lawsuit echoed criticisms he raised in an April 4
report on MF Global's collapse. At the time, he delayed filing
the lawsuit, citing mediation with Corzine.
Corzine's spokesman said the mediation is continuing.
A lawyer for Freeh did not respond to a request for comment.
Corzine had sought to transform MF Global into a global
investment bank, with a strategy that included a $6.3 billion
bet on sovereign debt of countries such as Belgium, Ireland,
Italy, Portugal and Spain.
But as Europe's economy weakened, MF Global was forced to
meet margin calls, and regulators learned that money in customer
trading accounts had been used to cover liquidity shortfalls.
The end came after the European sovereign debt wager and
high leverage ratio spooked markets and credit rating agencies.
But Freeh said MF Global even then missed opportunities to
curb its losses.
MF Global also came under intense scrutiny, including in
Washington, after about $1.6 billion went missing from
commodities customers' accounts.
But much of that has been recovered, and Giddens has said he
expects to recover 93 percent of commodities customers' funds.
On April 5, the Manhattan bankruptcy court approved MF
Global's liquidation plan, with unsecured creditors recovering
as much as 34 cents on the dollar.
In the wake of MF Global's collapse, the CFTC proposed rules
to better protect client funds and improve oversight by the
commodities industry's self-regulatory bodies, CME Group Inc
and the National Futures Association.
"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," CFTC
Commissioner Bart Chilton said in a statement discussing Freeh's
The case is Freeh et al v. Corzine et al, U.S. Bankruptcy
Court, Southern District of New York, No. 13-ap-01333. The main
bankruptcy case is In re: MF Global Holdings Ltd in the same
court, No. 11-15059. Other cases are included at In re: MF
Global Holdings Ltd Securities Litigation, U.S. District Court,
Southern District of New York, No. 11-07866.