MF Global lawsuit over trading scandal revived

NEW YORK Tue Sep 14, 2010 10:31pm IST

Related Topics

NEW YORK (Reuters) - MF Global Holdings LtdMF.N must face a class-action lawsuit accusing the brokerage of misleading investors about its risk management before a 2008 trading scandal, a federal appeals court said on Tuesday.

The U.S. Second Circuit Court of Appeals said a lower court judge erred in dismissing the lawsuit against MF Global, a futures and options specialist run since March by former New Jersey Governor and Goldman Sachs Group Inc Co-Chief Executive Officer Jon Corzine.

MF Global's market value fell about $1.1 billion, or 40 percent, on Feb. 28 and 29, 2008, following the revelation that a single trader that week lost about $141 million by speculating in wheat futures.

The investor lawsuit, led by a group of pension funds, accused MF Global of misleading them about its risk practices in a prospectus and registration statement issued when the New York-based company went public in July 2007.

Other defendants in the case include British hedge fund and onetime parent Man Group Plc, as well as various officers, directors and underwriters.

In a July 2009 ruling, U.S. District Judge Victor Marrero dismissed the case, pointing to cautionary statements in the prospectus about MF Global's risk management methods.

But a three-judge panel of the Second Circuit said this ruling was too broad.

"Characterizations of MF Global's risk-management system -- that the system was 'robust,' for example -- invite the inference that the system will reduce the firm's risk," Chief Judge Dennis Jacobs wrote for the appeals court. "Cautionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired."

The Second Circuit also reinstated a claim alleging that the prospectus did not disclose that traders had no limits when trading for clients. "At least as to phone orders, the firm's risk management controls did not reliably constrain brokers who executed trades on behalf of clients," Jacobs wrote.

Among the plaintiffs are pension funds in Illinois, Iowa and Massachusetts, as well as an institutional investor group.

Mark Rosen, a lawyer for the plaintiffs, declined immediate comment, saying he had yet to fully review the ruling. David Anders, a lawyer for MF Global, did not immediately return a call seeking comment.

MF Global shares were up 1.4 percent at $7.41 in midday trading on the New York Stock Exchange.

The case is Iowa Public Employees' Retirement System et al, v. MF Global Ltd, U.S. Second Circuit Court of Appeals, No. 09-3919.

(Reporting by Jonathan Stempel. Editing by Robert MacMillan and Lisa Von Ahn)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Canada Shooting

Canada Shooting

Canada's parliament attacked, soldier fatally shot nearby.  Full Article 

Earnings Season

Earnings Season

Wipro sees rosier end to year as U.S. clients spend.  Full Article 

Business Climate

Business Climate

Fears for tough penalties grow as India cleans up business  Full Article 

New Email Service

New Email Service

Google launches new email service dubbed "Inbox".  Full Article 

DLF Appeals

DLF Appeals

DLF seeks interim relief from capital market ban  Full Article 

Falling Oil Prices

Falling Oil Prices

Indian consumers respond to softer oil, food prices  Full Article 

Book Keeping

Book Keeping

RBI fires warning shots on companies' lack of FX hedging.  Full Article 

Policy Repo Rate

Policy Repo Rate

Most external members suggested rate cut in RBI's Sept review.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage