Risk & Compliance

PwC Settles $3B Suit Over MF Global Collapse

The firm was accused of "extraordinary" negligence in approving the accounting treatment for MF Global's investments in European soveriegn debt.
Matthew HellerMarch 23, 2017
PwC Settles $3B Suit Over MF Global Collapse

Two weeks into a trial in New York, PricewaterhouseCoopers has settled a $3 billion malpractice lawsuit alleging its accounting blunders caused the collapse of futures brokerage MF Global.

The settlement concludes the last major piece of litigation that the administrator winding down MF Global, hedge fund founder Nader Tavakoli, has been pursuing on behalf of its creditors. MF Global filed bankruptcy in 2011 amid investor anxiety about its investments in risky sovereign debt from troubled European countries.

Terms of the accord were not disclosed but Tavakoli had sought $3 billion in damages from PwC over what he called its “extraordinary and egregious” professional negligence in approving an accounting treatment that allowed MF Global to amass billions of dollars of European government bonds without recognizing them on its balance sheet.

MF Global invested in the bonds through a financial vehicle known as “Repo to Maturity” and, on the advice of PwC, recorded the RTMs as sales.

The RTM strategy was developed by ex-New Jersey Governor Jon Corzine, who joined MF Global as CEO in March 2010. Tavakoli alleged that because of the sale accounting, investors were kept unaware of MF Global’s sovereign debt position, causing a panic when it was finally disclosed in October 2011.

“[A] jury could reasonably conclude … that PwC’ s approval of sale accounting was a proximate cause of MF Global’s buildup of Euro RTMs and of the liquidity issues precipitating MF Global’s collapse,” U.S. District Judge Victor Marrero ruled in denying PwC’s motion for summary judgment.

At the trial, which began March 9, PwC blamed Corzine and his team for MF Global’s demise. “Lawyers for the firm tried to paint a picture of a buccaneering CEO who pushed too far, doubling down on big bets on EU debt in a desperate bid to boost profits,” The Financial Times reports.

Corzine testified he had trusted PwC because of its strong reputation and that the European debt was a low-risk investment that ultimately paid in full.

PwC said the case had been settled “to the mutual satisfaction of the parties.”