Trustee for MF Global sues former executives

Corzine among the defendants

A spokesman for Jon S. Corzine, a former governor who became chief executive in 2010, disputed the accusations.
Susan Walsh/Associated Press
A spokesman for Jon S. Corzine, a former governor who became chief executive in 2010, disputed the accusations.

NEW YORK — A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, saying they were ‘‘grossly negligent’’ in the lead-up to the brokerage firm’s collapse.

The action by the trustee, Louis J. Freeh, comes just weeks after he agreed to postpone the lawsuit and enter mediation with Corzine.

Now, by filing litigation that appeared to catch the MF Global executives off guard, Freeh appears to have jeopardized those talks.


A spokesman for Corzine, Steven Goldberg, disputed the accusations and questioned why Freeh was even bringing the case.

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‘‘We question why the trustee chose to file this lawsuit, which is filled with seriously flawed allegations, while he is participating in court-ordered mediation of these very claims,’’ he said.

Freeh, who represents hedge funds and other creditors of MF Global, said on Tuesday that ‘‘the mediation process is ongoing,’’ and that it was ‘‘in the best interests of the Chapter 11 estates to file the complaint.’’

In the complaint filed in US Bankruptcy Court late Monday, Freeh took aim at Corzine, a former Democratic senator and New Jersey governor who became MF Global’s chief executive in 2010. Freeh, the trustee for MF Global’s parent company and a former director of the FBI, also sued two of Corzine’s top deputies: Bradley I. Abelow, the chief operating officer, and Henri J. Steenkamp, the chief financial officer.

“Defendants, in their capacities as officers, breached their fiduciary duties of care, loyalty, and oversight over the company, and failed to act in good faith,’’ Freeh wrote.


Goldberg, the spokesman for Corzine, disputed the accusations. ‘‘There is no basis for the claim that Mr. Corzine breached his fiduciary duties or was negligent,’’ he said. ‘‘We look forward to proving the actual facts in court.’’

The actions against Abelow and Steenkamp are unusual in that both executives remained at MF Global for more than a year after the firm’s collapse, working under Freeh. They stayed to help sort through the bankruptcy process.

Gary P. Naftalis, a lawyer for Abelow, noted that Freeh has described that work as ‘‘invaluable.’’ Naftalis also expressed disappointment ‘‘that the trustee is now making allegations that lack any factual or legal basis.’’

The lawsuit comes on the heels of a bankruptcy judge approving Freeh’s plan to liquidate the firm.

The ruling signaled a final phase of a case that marked the biggest Wall Street bankruptcy since Lehman Bros. collapsed in 2008.


The lawsuit echoes a report Freeh issued this month that blamed MF Global executives for engineering a ‘‘risky business strategy’’ and ignoring ‘‘glaring deficiencies’’ in internal controls.

The report and the lawsuit also blamed the executives for allowing more than $1 billion in customer money to disappear from the firm.

The lawsuit, which could help Freeh recover money for MF Global’s creditors, blamed Corzine for ramping up a risky bet on European debt. While the bonds were not by themselves to blame for the collapse of MF Global, the wager spooked the firm’s investors and ratings agencies, helping to send it into a tailspin.

“Corzine engaged in risky trading strategies that strained the company’s liquidity and could not be properly monitored by the company’s inadequate controls and procedures,’’ Freeh said.

Goldberg called the complaint ‘‘a clear case of Monday morning quarterbacking.’’

Corzine, he noted, inherited a firm in 2010 that lost money in each of the previous three years. ‘‘Mr. Corzine worked tirelessly and in good faith to turn the business around,’’ Goldberg said.

It is unclear whether the lawsuit will alter the mediation talks. While Freeh said the discussions are ongoing, the lawsuit could derail or delay the mediation process.