Judge Denies Attempts To Dismiss Suit Against Corzine – Again

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.

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.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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