Lawyers for former MF Global Holdings Ltd. Chief Executive Jon
Corzine are asking a federal judge to toss a civil fraud lawsuit
accusing him of misleading investors about the risky bets the
futures firm was taking before its collapse a year ago.
Mr. Corzine's lawyers blasted the investors' suit as a "jumble
of assertions and accusations" that makes "no sense" that should be
dismissed in a filing Friday in U.S. District Court in New York. A
group of banks and underwriters--among them units of Goldman Sachs
Group Inc. (GS), J.P. Morgan & Co. (JPM) and Citigroup Inc.
(C)--that are also being targeted by the investors joined Mr.
Corzine in asking Judge Victor Marrero to throw out the
lawsuit.
Mr. Corzine, a former co-chairman of Goldman Sachs who later
became a U.S. Senator and then a governor of New Jersey, resigned
from MF Global last autumn, just days after the brokerage's
collapse on Halloween over its losing bets on European sovereign
debt revealed a $1.6 billion hole in its books.
Investors, now led Virginia Retirement System, sued Mr. Corzine,
other company executives and the banks that backed the trading
firm, claiming they failed to disclose the risks associated with MF
Global's European sovereign debt trades using
repurchase-to-maturity transactions.
While MF Global may have mismanaged trades, Mr. Corzine's
lawyers say, they contend he didn't hide the risks or mislead
investors about the firm's risk appetite or liquidity.
"In the first place, none of Mr. Corzine's public statements was
false or misleading in the context of MF Global's public
disclosures," his lawyers said.
Indeed, the investors's claim that Mr. Corzine participated in a
fraud "makes no sense" because, just two months before the company
collapsed, he bought over 50,000 shares of MF Global stock on the
open market. His lawyers argue Mr. Corzine's stock purchase belies
the investors' claim that he sought to defraud them.
As lawyers for the banks that underwrote MF Global's securities
noted, trading firms can go under without fraud.
"Companies sometimes fail because of unsuccessful business
strategies," said lawyers for the underwriters. "However
regrettable that reality, courts long have taught that such
failures alone do not give rise to claims under the federal
securities laws."
Mr. Corzine's large bets on bonds of troubled European countries
panicked investors and led to the firm's undoing. As MF Global
frantically tried to sell assets and negotiate a rescue deal, the
firm dipped into customer funds that aren't supposed to be touched
under federal regulations.
He testified before Congress last year that he was unaware of a
shortfall in customer assets at MF Global until hours before its
bankruptcy filing.
The Justice Department and regulators at the Commodity Futures
Trading Commission and Securities and Exchange Commission have
looked into MF Global's demise to determine if there was any intent
to remove money from customer accounts that should have been kept
separate from the firm's own funds under federal rules. To date,
neither Mr. Corzine nor others at MF Global have been charged with
a crime.
--Aaron Lucchetti contributed to this report
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@dowjones.com.
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