Risk & Compliance

MF Global Investors Settle Fraud Claims for $29M

The settlement with five financial institutions that underwrote the sale of MF Global bonds brings the total recovery for investors to about $234 m...
Matthew HellerMarch 15, 2016

MF Global Holdings investors have reached a a $29.8 million settlement with five financial institutions that underwrote the sale of its bonds, apparently concluding more than four years of litigation over the 2011 collapse of the futures brokerage.

The settlement in the securities class action brings the total recovery for investors to around $234 million, including $74.9 million from other underwriters, $64.5 million from ex-New Jersey Governor Jon Corzine and other former MF Global officials, and $65 million from the company’s auditor, PwC.

Investors led by the Virginia Retirement System and the Canadian province of Alberta alleged the five financial institutions — Jefferies LLC; units of Bank of Montreal, Natixis SA, and U.S. Bancorp; and Lebenthal & Co. — made false and misleading statements when they helped MF Global sell $325 million of 6.25% senior notes in August 2011.

As Reuters reports, MF Global filed for bankruptcy protection in October 2011 as “worries mounted about its sovereign debt exposure, credit rating downgrades, margin calls, and news that customer funds had been used to cover liquidity shortfalls.”

Corzine, who had joined the firm in March 2010, set out to try to transform it from a low-profile commodities broker into a Wall Street investment bank. He took a $6.3 billion position in European sovereign debt, especially the bonds of Italy, Spain, Portugal, and Ireland, betting the European Union would come to the rescue of Europe’s troubled economies, averting a default.

The big bet led two ratings agencies to downgrade the firm to junk, draining investor confidence — and cash — from the firm, and sending it spiraling into bankruptcy proceedings, the New York Times said.

The exodus of investors created what was believed to be a $1.6 billion shortfall in customer accounts that should have been segregated from MF Global’s money pool. “The shortfall has since been recovered and brokerage customers of MF Global, with funds recovered by Securities Investor Protection Act litigation, are set to receive roughly 95 cents on the dollar,” the Wall Street Journal said.

The latest settlement of investors’ claims requires court approval.