A group of Montana farmers have filed a class-action lawsuit against former MF Global chief Jon Corzine and other players in the firm’s bankruptcy. The lawsuit charges that the failed financial firm stole millions of dollars from their accounts to repay mounting debt
MF Global clients included nearly 40,000 wheat producers, cattle ranchers and other agricultural professional who “hedged” their crop prices by placing million of dollars in MF Global accounts. These accounts were intended to be “segregated and secure,” meaning the firm could not draw on those funds.
The lawsuit, filed on behalf of all 38,000 customers, alleges that MF Global siphoned funds from segregated client accounts to cover debts.
One of the plaintiff’s attorneys, Mark Baker of the law firm Anderson, Baker & Swanson, puts further pressure on MF Global’s response to bad investments.
"This is a suit by the real victims of MF Global," Baker told ABC News. "The missing funds were not investments in MF Global, or loans to MF Global, but rather the customer's own money as collateral to guaranty their contracts. They were not to be used by others – let alone their own broker – to speculate on risky and exotic securities."
Corzine was CEO of the firm when it declared Chapter 11 on Oct. 31, 2011. Regulators initially thought $600 million of customer funds had gone missing but later increased their estimate to $1.2 billion.
Just 60 percent of the customer funds have been found.
The Billings (Mont.) Gazette reports that the farmers are suing more than just Corzine, a former Democratic governor and U.S. Senator. They are also suing auditor PricewaterhouseCoopers and banker JP Morgan for enabling MF Global trade practices that led to its collapse.
The MF Global bankruptcy was the eighth-largest in American history.
“They bet the farm on European sovereign debt. I just didn’t realize it was my farm they were betting,” Marty Klinker, a Fairfield, Mont., farmer told the Billings Gazette. Klinker had $600,000 frozen in the MF Global bankruptcy.
He and other plaintiffs argue that auditor PricewaterhouseCoopers kept giving MF Global a clean bill of financial health, even as customer accounts were raided. Had PricewaterhouseCoopers reported the activity, regulators for the Chicago Mercantile Exchange and U.S. Commodities Futures Trade Commission may have been alerted.
The plaintiffs also accuse JP Morgan of giving MF Global substantial assistance in converting segregated consumer assets. According to the lawsuit, at one point JP Morgan gave MF Global a $1.2 billion line of credit. The plaintiffs contend that JP Morgan should have been alarmed when MF Global couldn’t repay its loan.
Matt Edling, an attorney representing the farmers, noted that MF Global did manage to make a payment – presumably with client money taken from segregated accounts.
According to Edling, JP Morgan wrote MF Global to inquire if the money had been taken from client accounts. MF Global never responded, and JP Morgan cashed the loan repayment check.
“JP Morgan’s role wasn’t just a minimal role,” Edling said. “They were in on all MF Global’s major transactions. This was an institution that had their hands all over this. Jon Corzine might have robbed the bank, but JP Morgan and PricewaterhouseCoopers drove the getaway car.”
Although the MF Global trustee has assured clients a 72 percent asset recovery, Eding points out that it still doesn’t account for the $300 million more still missing.
In addition to Corzine, other MF Global officials targeted in the lawsuit include chief financial adviser Christine A. Serwinski; and David Simons, head of operations.
The plaintiffs in the case are seeking class-action status and are represented by the Helena law firm Anderson, Baker and Swanson and the San Francisco firm Cotchett, Pitre and McCarthy.
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