Jon Corzine and four other former executives of bankrupt MF Global Holdings Ltd. were sued by a group of commodity traders seeking damages for lost funds.
Henning-Carey Proprietary Trading LLC, a clearing firm and member of CME Group Inc., joined with eight traders in seeking recovery of an unaccounted-for $1.2 billion in customer funds at the brokerage unit MF Global Inc.
“Defendants were responsible for insuring that the plaintiffs’ property was properly segregated and accounted for,” the traders said in the complaint filed yesterday in federal court in Chicago.
The suit is one of several filed by brokerage customers and former employees against Corzine, MF Global executives or the company since it filed for bankruptcy protection on Oct. 31.
Corzine told the House Agriculture Committee at a hearing in Washington yesterday that he “would never have intended” transfers from segregated accounts and had teams in place at the firm to ensure they didn’t occur.
He wouldn’t say if he and other executives were willing to share customers’ losses.
Corzine and his executives were responsible for looking after customers’ segregated accounts, yet the money went missing as the company tried to salvage its business after “engaging in highly leveraged and speculative trading in foreign sovereign bonds,” the traders claimed in the complaint.
Breach of Duty
They allege the executives aided the firm’s breach of fiduciary duty to its clientele, and its violation of Commodity Exchange Act provisions and Commodity Futures Trading Commission regulations.
Andrew Levander, an attorney for Corzine, didn’t immediately respond to an e-mail yesterday seeking comment on the traders’ allegations.
The plaintiffs’ accounts were frozen along with about 38,000 others on Oct. 31, after “apparent segregation violations,” making it impossible for customers to access their accounts or the assets in them, the plaintiffs said.
MF Global Inc. trustee James Giddens, who is liquidating the brokerage, has transferred about 38,000 commodity accounts to other firms, and plans to sell 330 securities accounts, he said. Three transfers of collateral made and pending will give commodity customers about $4 billion of their assets, according to court filings.
Claiming funds distributed by Giddens won’t make them or other account holders whole, the traders are seeking class action, or group, status on behalf of all MF Global customers who had cash or property on deposit as of the bankruptcy filing date.
They also want an award of unspecified compensatory and punitive damages.
The parent company’s bankruptcy was the eighth-biggest in U.S. history, listing assets of $41 billion.
Corzine, the former co-chief executive officer of Goldman Sachs Group Inc., quit as MF Global’s CEO on Nov. 4.
The case is Henning-Carey Proprietary Trading LLC v. Corzine, 11-cv-08717, U.S. District Court, Northern District of Illinois (Chicago).