Jon Corzine sued by trustee Freeh over MF Global failure

Former-MF Global CEO Jon Corzine Former-MF Global CEO Jon Corzine

Jon Corzine, the former head of bankrupt broker MF Global Holdings Ltd., was sued by the holding company’s trustee, Louis J. Freeh, for failing in his duty to oversee the company and causing the eighth-biggest bankruptcy in U.S. history.

The suit, filed in U.S. bankruptcy court in Manhattan, alleges that Corzine, the company’s chief executive officer and a former governor and senator from New Jersey, along with senior executives Bradley Abelow and Henri Steenkamp, failed to act in good faith and implemented strategies that caused the company to fail.

“The trustee brings this action for acts and omissions that culminated in the business collapse of the company and the bankruptcies of the debtors,” according to the complaint.

The suit follows a 124-page report published this month by Freeh, the bankruptcy trustee, which blamed Corzine and his management team for bungling an expansion of the company’s traditional business model while ignoring deficiencies in its risk controls. Corzine’s strategy invested heavily in European sovereign debt and produced no significant revenue, and he and Chief Financial Officer Steenkamp knew that the company’s controls were flawed as early as May 2010, according to the report.

Wrong-Way Trade

The parent company of brokerage MF Global Inc. filed for bankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most-indebted nations. The company listed assets of $41 billion and debts of $39.7 billion.

Freeh’s findings come five months after U.S. House Republicans also faulted Corzine’s leadership in a report released in November. That report, reached by majority Republicans on a Financial Services subcommittee, described a lack of coordination between the Commodity Futures Trading Commission and Securities and Exchange Commission, primary regulators for MF Global’s U.S. operations.

Freeh has been unwinding the company under Chapter 11 bankruptcy in an effort to repay creditors. James Giddens, a separate trustee for the failed brokerage arm, is liquidating assets to repay customers under the Securities Investor Protection Act.

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