MF Global Judge Narrows Customer Suit Alleging Fraud

MF Global Holdings Ltd.’s independent directors won dismissal of nine claims, including fraud and violations of New York business law, in a lawsuit brought by a customer of the defunct brokerage company.

Allegations against New York-based private equity firm J.C. Flowers & Co. tied to the conduct of former MF Global Chairman Jon Corzine were also thrown out today by U.S. District Judge Victor Marrero in Manhattan, who previously narrowed claims in a related suit against Corzine brought by customers suing in the wake of the company’s 2011 collapse.

Marrero said in his ruling that plaintiff Sapere CTA Fund LLP, a former commodities customer of MF Global, brought claims that “fly in the face” of legal precedent and targeted some defendants who “could not plausibly bear responsibility for any of the harm” alleged in a complaint originally filed in 2011.

While the judge allowed claims to go forward against Corzine and Edith O’Brien, MF Global’s former assistant treasurer, he concluded that the Sapere plaintiffs failed to state a case against the firm’s seven former independent directors.

“No amount of argument can overcome the lack of legal support for several of the claims filed in this action,” Marrero wrote.

Directors’ Lawyer

Edmund Polubinski, a lawyer for the independent directors, had urged the judge to throw out the claims, saying in a court filing that Sapere failed to connect his clients to the alleged wrongful conduct.

“The independent directors had no awareness of or any involvement in any allegedly illegal transfers of customers’ funds,” Polubinski said. “No party has ever asserted they did.”

Edward Pinter, a lawyer for Sapere, said it was the single largest commodities customer affected by New York-based MF Global’s collapse, losing hundreds of millions of dollars.

“We are generally pleased with the decision, as it keeps the core claims against Jon Corzine and other MF Global executives intact,” Pinter said in a phone interview. “We do remain confident that Corzine and the other defendants will be held accountable for their acts.”

Bankruptcy Filing

MF Global filed for bankruptcy on Oct. 31, 2011, after a $6.3 billion bet on bonds of some of Europe’s most indebted nations. Customers alleged in lawsuits against Corzine and other former executives that more than $1.6 billion that should have been segregated was transferred to other parts of the company during a liquidity crisis.

Marrero in February denied bids by Corzine, a former governor of New Jersey and onetime co-chairman of Goldman Sachs Group Inc., to dismiss several cases brought over MF Global’s collapse. Today, the judge again rejected a request by Corzine, O’Brien and other ex-MF Global officers to throw out claims that they aided and abetted violations of the Commodities Exchange Act.

Steven Goldberg, a spokesman for Corzine at Sard Verbinnen & Co., said he had no immediate comment on Marrero’s rulings.

The case is In re MF Global Holdings Limited Investment Litigation 11-cv-07866, U.S. District Court, Southern District of New York (Manhattan).

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