Jon Corzine, the former head of MF Global Holdings Ltd., masterminded a scheme to inflate earnings that led to the eighth-biggest bankruptcy in U.S. history, according to an updated lawsuit filed by a trustee for the failed futures broker.
Corzine, a former Democratic governor and senator from New Jersey and once a co-chairman of Goldman Sachs Group Inc., implemented the trading scheme to prop up profits and get “in the money” on his stock options, according to an amended complaint filed in Manhattan bankruptcy court yesterday.
The new complaint intensifies the lawsuit brought in April by former trustee Louis J. Freeh against Corzine and senior executives Bradley Abelow and Henri Steenkamp. Freeh had said only that the executives dramatically changed MF Global’s business plan without addressing weaknesses. According to the new complaint, their actions rose to the level of a “scheme.”
“This is certainly throwing fuel on the fire,” said Michael Weinstein, chairman of Cole, Schotz, Meisel, Forman & Leonard PA’s white-collar practice in Hackensack, New Jersey. “You get into a whole new area,” possibly putting MF Global on par with financial frauds such as Enron Corp. and Adelphia Communications Corp., the former Justice Department trial attorney said in a phone interview.
The new allegations may allow the holding company’s current trustee, Nader Tavakoli, to try and recoup greater damages from the estate, potentially going after money Corzine made from his bonus or options, Weinstein said. Both lawsuits seek damages to be determined at trial.
The word “fraud” doesn’t appear in the complaint, Weinstein said. If it did, that might void Corzine’s directors’ and officers’ insurance policy, leaving less money to try and recoup through the lawsuit, he said.
Steven Goldberg, a spokesman for Corzine, didn’t immediately return a call and e-mail for comment on the suit. Corzine has said there is no basis for the claim that he breached his fiduciary duties or was negligent.
MF Global’s bankruptcy can be “traced to a scheme” that Corzine, Abelow and Steenkamp “designed and implemented to prop-up the company’s apparent profitability through highly leveraged transactions in foreign debt,” Tavakoli said.
Shortly after the three took control of the company, they put it on a high-risk path that devastated its liquidity, depleted customer funds and ultimately caused its failure, Tavakoli said.