Former NJ Gov. Corzine sued by MF Global trustee

Former MF Global Holdings Ltd. Chairman and CEO Jon Corzine arrives on Capitol Hill in Washington, Tuesday, Dec. 13, 2011, to testify before the Senate Agriculture Committee hearing to examine MF Global bankruptcy. ((AP Photo/Susan Walsh))

April 23, 2013 8:15:23 AM PDT
The trustee in the MF Global Holdings bankruptcy case has sued ex-CEO Jon Corzine and other former executives, alleging that they "failed to act in good faith" while running the company.

The lawsuit, filed Monday in bankruptcy court in New York, says Corzine and two other top executives "dramatically changed" the company's business plan after he became CEO in late 2010. They then failed to update controls and other systems that were already weak, the lawsuit said.

Corzine then pushed the company into making big bets on bonds issued by European countries, a move that proved disastrous during the implosion of the debt crisis the following summer.

According to the lawsuit, the company's controls were so bad that it couldn't determine its liquidity levels in real time, a weakness that ultimately contributed to the company's collapse in October 2011. It portrays Corzine and others as executives who were aware of the risks but purposefully ignored them. Corzine, who stepped down as MF Global CEO soon after the collapse, is the former co-chairman of Goldman Sachs, a former Democratic U.S. senator and the former governor of New Jersey.

Corzine and two of his top executives, the chief operating officer and the chief financial officer, "were repeatedly warned - in reports, meetings, emails, and in-person exchanges - of the failures and need for improvements in the Company's procedures and controls," the lawsuits says. "Yet, instead of taking necessary steps to fix those problems," Corzine and his deputies "pursued an even riskier business plan."

The lawsuit is notable not because of any significant revelations but because it represents an escalation in the battle between Corzine and the bankruptcy trustee, former FBI director Louis Freeh. Freeh is overseeing the wind-down of MF Global Holdings, which means he is trying to recover money for creditors.

Earlier this month, Freeh filed a scathing report about Corzine and other executives with many of the same accusations. At the time, he said that he had already prepared a complaint against the former executives, but agreed to postpone filing it until after trying to resolve the issues through mediation.

A Corzine spokesman at the time condemned the portrayal of the former CEO. Steven Goldberg, the spokesman, said the report ignored the fact that banks and other firms that were MF Global's trading partners failed. They didn't pay what they owed to MF Global, a key cause of the company's collapse.

It's not the first lawsuit against Corzine: MF Global shareholders and customers have also filed complaints.

A separate trustee, James Giddens, is in charge of recovering money for customers of the parent company's broker-dealer, MF Global Inc.