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MF Global Trustee Freeh Sues Corzine

Tickers in this article: MFGLQ

NEW YORK (TheDeal) -- Less than three weeks after issuing a report blaming former CEO Jon Corzine for the collapse of MF Global Holdings Ltd., the company's Chapter 11 trustee has sued the executive and two other board members.

In a Monday, April 22, complaint, Chapter 11 trustee Louis Freeh of Pepper Hamilton LLP faulted Corzine, chief operating officer Bradley Abelow and former chief financial officer Henri Steenkamp for the brokerage firm's demise.

Freeh alleged the defendants had "breached their fiduciary duties of care, loyalty and oversight over the company and failed to act in good faith."

The trustee further alleged that when the defendants were at the helm of MF Global Holdings, they "changed the company's business plan without addressing existing systemic weaknesses that ultimately caused the plan to fail."

"As part of the new business plan, and in violation of his fiduciary duties to MF Global as the chief executive officer of MF Global Holdings and MF Global Inc., defendant Corzine engaged in risky trading strategies that strained the company's liquidity and could not be properly monitored by the company's inadequate controls and procedures. Defendants Abelow and Steenkamp, Corzine's hand-picked deputies and the company's most senior officers, breached their fiduciary duties by failing to ensure that the company's procedures and controls were adequate and could accommodate the company's new business plan."

Freeh alleged the defendants were aware of deficiencies in liquidity controls and procedures and knowingly exposed the company to excessive risks.

The trustee asserted these events inflicted material damages on the company, and that between Corzine's arrival at the company in March 2010 and its Oct. 31, 2011, petition date, MF Global Holdings lost in excess of $1 billion in value, not including shortfalls in customer funds.

The suit seeks monetary damages in an amount to be determined at trial, plus attorneys' fees, costs and expenses, for three counts of breach of fiduciary duty.

The legal action reiterates many claims Freeh made in an April 4 report, in which he said Corzine's strategy to begin engaging in significant proprietary trading, or using the company's own funds to trade and profit from anticipated changes in market prices, ultimately led to MF Global's downfall. Freeh cited the "negligent conduct" of the former New Jersey governor and senator.