A US District Judge in Manhattan has cleared the way to hold MF Global Holdings Ltd(OTCMKTS:MFGLQ) senior executives responsible for the collapse of the failed derivatives brokerage firm.

Jon Corzine MF Global

MF Global senior executives target of lawsuit

Three MF Global executives named in the suit – former CEO Jon Corzine, COO Bradley Abelow and CFO Henri Steenkamp – had sought to dismiss the case brought by US bankruptcy trustees.  The suit charges the leadership team was responsible for the liquidity crisis that brought about the firm’s demise the final week of October, 2011, noted a Reuters report.  At the end of that week executives at the brokerage firm transferred nearly $1.6 billion in customer assets, much of which went to cover the firm’s financial obligations as it was failing, which is the subject of a separate Commodity Futures Trading Commission legal action.

Judge says “MF Global officers repeatedly increased the company’s exposure to risky bets on sovereign debt and shuffled funds among MF Global’s subsidiaries to cover a growing liquidity crisis”

Judge Victor Marrero ruled the suit against the executives would proceed, but did not rule on the merits of the case.  In a particularly harsh statement, Marrero wrote in his decision: “Defendants and other MF Global Holdings Ltd (OTCMKTS:MFGLQ) officers repeatedly increased the company’s exposure to risky bets on sovereign debt and shuffled funds among MF Global’s subsidiaries to cover a growing liquidity crisis. These facts give rise to reasonable inferences that defendants acted in bad faith.”  Marrero made similarly harsh comments five months ago when he denied attempts to dismiss a CFTC lawsuit against Corzine and MF Global senior executives.

Corzine, MF Global should have been aware of mathematical inevitability, say critics

MF Global Holdings Ltd (OTCMKTS:MFGLQ)’s had faced diminishing liquidity from a large sovereign debt trade gone bad.  In 2011 Corzine had fired MF Global’s risk manager, who questioned the logic behind Corzine’s trade.  Critics say this was a mathematical problem should have been anticipated by management. The defendants argue in court papers the trustee is second-guessing their decisions.