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From Securities Regulation Daily, July 7, 2015

MF Global officials to settle investor suit for $64.5 million

By Lene Powell, J.D.

Chairman and CEO Jon Corzine and other former executives and directors of failed commodities broker MF Global agreed to pay $64.5 million to settle an investor class action alleging fraudulent statements relating to the company’s financial condition. Together with a recent proposed settlement with PricewaterhouseCoopers (PWC) and an approved settlement with certain underwriter defendants, the investors will recover more than $204 million, or about 26 percent of estimated maximum recoverable damages. The settlement must be approved by the court (In re MF Global Holdings Limited Securities Litigation, July 7, 2015).

Background.  MF Global was formerly a leading futures commission merchant in markets for commodities and listed derivatives. In October 2011, the firm experienced a liquidity crunch and raided customer accounts to cover the losses, then collapsed and filed for bankruptcy. In 2013, MF Global agreed to pay $1 billion in restitution to commodities customers, as well as a $100 million civil monetary penalty. In April 2014, the bankruptcy trustee began making full final payment to customers.

According to the original complaint in the securities fraud action, the company and a number of high-level officials and directors made false public statements, SEC filings, and certifications to conceal the company’s shaky condition. In particular, Corzine and the firm’s CFO made false assurances concerning capital and liquidity, and falsely certified under Sarbanes-Oxley Section 302 that the company's internal controls were safe and effective. The plaintiffs alleged that this conduct violated Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, as well as Rule 10b-5. Similar putative class actions were consolidated.

Settlement. According to the plaintiffs’ memorandum in support of the $64.5 million cash settlement, the recovery is an “excellent result” considered in combination with the proposed $65 million PWC agreement,  $74.9 million approved agreement with certain underwriters, and a nearly $1 million settlement with securities brokerage Commerz Markets LLC. The two sides did not see eye to eye on liability, but plaintiffs said that further litigation would be risky and might not result in any recovery, given the inability of MF Global to contribute to any settlement due to its bankruptcy, as well as the firm’s “rapidly depleting” directors and officers insurance. The amount of the settlement is based partly on the individual net worth of the officer defendants.

The individuals who joined the settlement were officer defendants Jon S. Corzine, J. Randy MacDonald, and Henri J. Steenkamp, as well as director defendants David P. Bolger, Eileen S. Fusco, David Gelber, Martin J.G. Glynn, Edward L. Goldberg, David I. Schamis, and Robert S. Sloan.

According to co-lead counsel Bleichmar Fonti Tountas & Auld, litigation is continuing against underwriters responsible for the final $325 billion bond offering.

The case is No. 1:11-CV-07866-VM.

Attorneys: Andrew J. Levander (Dechert LLP) for Jon S. Corzine. Richard David Gluck (Bernstein Litowitz Berger & Grossmann LLP) for Virginia Retirement System. Joseph Alberto Fonti (Bleichmar Fonti Tountas & Auld LLP) and Kimberly Kalmanson (Kimberly Kalmanson, Attorney at Law) for Her Majesty the Queen in Right of Alberta. Arthur Harlod Aufses, III (Kramer Levin Naftalis & Frankel LLP) for Bradley I. Abelow. Ethan Yu Lee (Milbank, Tweed, Hadley & McCloy LLP) for Michael G. Stockman. Daniel Craig Lewis (Shearman & Sterling) for U.S. Bancorp Investments, Inc., Jefferies LLC f/k/a Jefferies & Co., Inc. and Natixis Securities Americas LLC f/k/a Natixis Securities North America Inc. Laura Steinberg (Sullivan & Worcester) for David Dunne. David A Geier (Geier Homar & Roy LLP) for Matthew Hughey.

Companies: Virginia Retirement System; U.S. Bancorp Investments, Inc.; Jefferies LLC f/k/a Jefferies & Co., Inc.; Natixis Securities Americas LLC f/k/a Natixis Securities North America Inc.

MainStory: TopStory CommodityFutures FraudManipulation DirectorsOfficers NewYorkNews

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