(Adds lawyer statement, other MF Global litigation, paragraphs
By Jonathan Stempel
NEW YORK Aug 27 A federal judge on Wednesday
ordered PricewaterhouseCoopers to face a $1 billion lawsuit
claiming that its bad accounting advice was a substantial cause
of the October 2011 bankruptcy of MF Global Holdings Ltd, a
brokerage run by former New Jersey Governor Jon Corzine.
U.S. District Judge Victor Marrero in Manhattan said PwC's
advice on "repurchase-to-maturity" transactions through
which Corzine bought $6.3 billion of European sovereign debt
affected how MF Global implemented its strategy and in turn
contributed to its alleged losses.
"This line of causation gives rise to a plausible claim that
PwC proximately caused harm to MF Global," Marrero wrote.
MF Global's bankruptcy plan administrator sued PwC on March
28, accusing it of professional malpractice for having provided
"flatly erroneous" accounting advice to the company. Corzine is
not a defendant.
Marrero on Wednesday noted that factors such as how MF
Global employees implemented Corzine's strategy might also have
been major causes of the New York-based company's losses. But he
said a jury, not a judge, should sort out who was liable.
The judge did dismiss breach of contract and unjust
enrichment claims against PwC.
Caroline Nolan, a PwC spokeswoman, said, "We respectfully
disagree" with the decision to let the case go forward.
She also said PwC's audit of MF Global complied with
professional standards, and that MF Global's treatment of the
repurchase-to-maturity transactions was consistent with
generally accepted accounting principles.
Daniel Fetterman, a partner at Kasowitz, Benson, Torres &
Friedman representing the administrator, said: "We are pleased
with Judge Marrero's well-reasoned decision, and look forward to
presenting our case to a jury."
Before its rapid demise, MF Global had struggled with
worries about the sovereign debt, credit rating downgrades,
margin calls, and news that money from customer accounts was
used to cover liquidity shortfalls.
Brokerage and commodity customers have since recovered
nearly all their money.
Marrero on July 9 rejected PwC's argument that the MF Global
administrator "stands in the shoes" of the company under the "in
pari delicto" legal doctrine and cannot recover because Corzine
and other officials were also at fault.
Corzine is also a former Goldman Sachs co-chairman.
He faces other lawsuits over MF Global from investors, customers
and U.S. regulators, which Marrero also oversees.
The case is MF Global Holdings Ltd as Plan Administrator v.
PricewaterhouseCoopers LLP, U.S. District Court, Southern
District of New York, No. 14-02197.
(Reporting by Jonathan Stempel in New York; Editing by Cynthia
Osterman and Tom Brown)