Judge Rejects PwC Bid to Dismiss $1B Malpractice Suit Over MF Global Collapse

By | August 8, 2016

A federal judge rejected PricewaterhouseCoopers’ bid to dismiss a $1 billion lawsuit accusing the accounting firm of professional malpractice for helping cause the October 2011 bankruptcy of MF Global Holdings Ltd, a brokerage once run by former New Jersey Governor Jon Corzine.

In a 69-page decision made public on Friday, U.S. District Judge Victor Marrero in Manhattan said there remained open questions concerning whether PwC’s alleged bad accounting advice was a substantial cause of MF Global’s rapid demise.

“PwC has not satisfied its burden of demonstrating the absence of any genuine issue of material fact,” Marrero wrote.

Caroline Nolan, a PwC spokeswoman, said the accounting firm was reviewing the decision.

Corzine is not a defendant in the lawsuit, which was filed in March 2014 by MF Global’s bankruptcy plan administrator.

“This is a major victory for the MF Global estate,” Nader Tavakoli, director of the administrator, said in a statement. “We hope to secure a substantial recovery for MF Global’s stakeholders.”

The decision keeps alive one of the last remaining pieces of litigation relating to MF Global’s Oct. 31, 2011 bankruptcy.

PwC in April 2015 reached a $65 million cash settlement with former shareholders and bondholders, in which it denied wrongdoing. MF Global officials and bank underwriters have also settled with investors, with some payments covered by insurance. Customers have been made whole.

MF Global sought Chapter 11 protection after investors grew anxious about Corzine’s $6.3 billion wager on European sovereign debt, a large quarterly loss, credit rating downgrades, margin calls, and the use of customer funds to shore up liquidity.

The plan administrator accused PwC of “extraordinary and egregious professional malpractice and negligence” in approving MF Global’s accounting for “repurchase-to-maturity” transactions through which Corzine bet on sovereign debt.

It also faulted PwC’s advice on some deferred tax assets, on which MF Global took a $119.4 million write-off just six days before going bankrupt. That contributed to a $191.6 million quarterly loss.

In papers filed under seal but summarized by Marrero, PwC said no reasonable jury could find that its advice proximately caused MF Global’s bankruptcy.

It also said the administrator “stands in the shoes” of the company under a legal doctrine called “in pari delicto,” and could not prevail because MF Global had been an “active and voluntary participant” in the decision-making.

Corzine and former MF Global Assistant Treasurer Edith O’Brien still face a 2013 civil lawsuit by the U.S. Commodity Futures Trading Commission.

The case is MF Global Holdings Ltd v PricewaterhouseCoopers LLP, U.S. District Court, Southern District of New York, No. 14-02197.

(Reporting by Jonathan Stempel in New York; Editing by Bernadette Baum and Jonathan Oatis)

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