BofA, Goldman Sachs, Other Banks Sued Over MF Global's Collapse

(Jonathan Stempel) - Seven banks that helped MF Global Holdings Ltd sell bonds were sued by pension funds who said the bonds' offering prospectuses concealed problems that led to the futures brokerage's collapse.

The lawsuit was filed Friday afternoon in Manhattan federal court against units of Bank of America Corp, Citigroup Inc, Deutsche Bank AG, Goldman Sachs Group Inc, Jefferies Group Inc, JPMorgan Chase & Co and Royal Bank of Scotland Group Plc.

Other defendants include several officials associated with MF Global, including former Chief Executive Jon Corzine.

Friday's lawsuit may be one of the earliest efforts for investors to recover money from relatively deep-pocketed defendants that they believe may share in responsibility for MF Global's October 31 bankruptcy.

Bank of America spokeswoman Shirley Norton, Citigroup spokeswoman Danielle Romero-Apsilos and Jefferies spokesman Richard Khaleel declined to comment. The remaining banks did not immediately respond to requests for comment.

According to the complaint, the registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.

It said the seven banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees, but that their "failure to conduct an adequate due diligence investigation was a substantial factor" in MF Global's collapse, as well as in defaults on the notes.

The lawsuit was brought by the IBEW Local 90 Pension Fund in Connecticut, and the Plumbers' and Pipefitters' Local #562 Pension Fund in Missouri, and seeks class-action status.

It seeks damages for investors between February 3, 2011 and October 31, 2011 in MF Global securities, including its 1.875 percent convertible senior notes maturing in 2016, its 3.375 percent convertible senior notes maturing in 2018, and its 6.25 percent senior notes maturing in 2016.

MF Global is not a defendant because of the bankruptcy.

The case is IBEW Local 90 Pension Fund et al v. Corzine et al, U.S. District Court, Southern District of New York, No. 11-08401.

(Reporting by Jonathan Stempel in New York, editing by Bernard Orr)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[drbob601]

08:16 PM on 11/21/2011

Sorry, I'm not a fan of Goldman or BofA at all...but whoever is overseeing these pension funds needs to start doing their OWN due diligence.

After all that's happened in the last three years...and all the revelations about the behavior of US investment banks - and their attitudes towards their own clients - these pension fund managers STILL believed they could trust these guys? Sheez, do some reading on the internet once in a while. It's all there, and not that difficult to find. These guys are sharks.

[gtposse]

06:33 PM on 11/21/2011

Financial markets are a confidence game and when you decide to play you have to conduct your own due delligence. The mistake that investors will always make is driven by greed. If the investment you are about to buy cannot be described on a one page document it is all hokus pokus and you will get burned.

[Booblius]

12:13 PM on 11/21/2011

Captain Obvious notes that Gary Gensler (ex-Goldman guy) oversees Jon Corzine (ex-Goldman CEO) and people are robbed; and nobody goes to jail. Where have we seen this before? Oh yeah, Hank Paulson (ex-Goldman CEO) oversees bailout of Blankfein (current Goldman CEO) and Treasury gets robbed; and nobody goes to jail.

[Chubbster]

11:59 AM on 11/21/2011

Here it is, what will turn out to be the biggest story of the year, buried at the bottom of the column because there is fear among the editors that someone may associate the name Jon Corzine, Democrat money man bundler insider and world class thief with Barack Obama. Why is this the biggest story? CNBC is reporting that there are now clients running out of the markets entirely because they do not believe their customer funds are safe.

The belief that there are more MF Globals has now taken hold. The thieves have pushed it too far and now we've got the start of a global liquidity run, and with good reason.

The authorities both in the regulatory side and on the prosecutorial side have refused to put a stop to the thievery -obviously under the orders of someone really important because WHO ELSE could tell the DOJ not to prosecute admitted to and obvious crimes and WHO ELSE could order that NOT ONE FBI agent investigate the criminal banksters- and now the risk factors have turned into realized risk. You can be right on a trade but if you then get screwed when someone steals the money and nobody goes to jail there comes a time when people begin to understand that it can happen to them and will unless they depart the market.

This isn't just about speculators - it is also about farmers, shippers, airlines, manufacturing concerns, everyone in business who has a need to hedge.

[imusintheevening]

12:29 PM on 11/21/2011

Yeah, and even less regulation would have prevented this, right?

[castlemike]

10:47 AM on 11/21/2011

Why isn't Corzine in jail?

http://ca.news.yahoo.com/insight-anger-mounts-mf-global-clients-see-3bln-190836206.html

Anger mounts as MF Global clients see $3 billion still stuck

NEW YORK (Reuters) - Three weeks after MF Global's collapsed, furious former customers are still fighting for access to billions of dollars as they question why as much as two-thirds of their money is still stuck.

While authorities have touted the fact that they are returning 60 percent of the collateral and cash that had been frozen in the wake of the broker's October 31 bankruptcy, a closer look shows that in fact only about 40 percent of customers' total funds have been authorized for release so far.

The remainder, more than $3 billion, ostensibly remains on hand to cover a shortfall originally estimated by MF Global to regulators at just $600 million.

Because the bankruptcy trustee, regulators and exchanges have made no comment on the missing funds in weeks -- and have given no information as to how much cash they are retaining -- customers are left guessing exactly how much might end up in the creditors' process of the bankruptcy.

After weeks of intense lobbying by customers and exchanges, trustee James Giddens last week won court approval to release another $520 million in funds from MF Global accounts that contained only cash as of October 31.

[Chubbster]

12:04 PM on 11/21/2011

>Why isn't Corzine in jail?

Too funny. Don't you realize he has qualified for the special ongoing "Financial Criminal Protection Program?" Don't you realize how many hundreds have already escaped prosecution due to the kindness of their benefactor and quietly await the expiration of the statutes of limitations?

[castlemike]

12:17 PM on 11/21/2011

I would expect it to be closer to tens of thousands not hundreds.

[brandon20678]

07:18 AM on 11/21/2011

This is no surprise at all typical Bank Fraud.

[munki]

02:36 AM on 11/21/2011

When white collar crime becomes criminal, beyond the reasonable doubt?
Harder to convict? As they may have wealth to hire high profile legal representation!?!

[Chubbster]

12:05 PM on 11/21/2011

Not harder to convict, merely under protection.

[frankieshoes1]

01:29 AM on 11/21/2011

Except for the world of high finance, in every instance the criminal case comes before the civil action. And while these people in high finance view losing money as akin to losing children they should still be answering these lawsuits from a jail cell.

[GoldwaterKid]

11:30 PM on 11/20/2011

What's the big deal, MF Global lied and then they got caught?

[Chubbster]

12:06 PM on 11/21/2011

You have just transcended superficial understanding and entered into utter stupidity.

[mudshark12]

11:24 PM on 11/20/2011

This is what happens without sufficient banking regulations is place.

"According to the complaint, the registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.

It said the seven banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees, but that their "failure to conduct an adequate due diligence investigation was a substantial factor" in MF Global's collapse, as well as in defaults on the notes.

The lawsuit was brought by the IBEW Local 90 Pension Fund in Connecticut, and the Plumbers' and Pipefitters' Local #562 Pension Fund in Missouri, and seeks class-action status."

I really want the white collar crooks NOT to get away with this, best of luck to IBEW Local 90 & Pipefitters' Local #562 Pension Funds. It's important NOT to allow Criminals to steal peoples retirements, they worked hard for that money!

[ForVivi]

07:24 PM on 11/20/2011

Who are the 1%? Vote on the worst:

http://whoarethe1percent.com/

[lynniemiller]

10:59 AM on 11/21/2011

Great site.

Thank you and Best wishes

[Chubbster]

12:06 PM on 11/21/2011

Actually its the 1/10 of 1%.

[optomist1]

06:47 PM on 11/20/2011

its deja vu all over again...

[castlemike]

06:46 PM on 11/20/2011

http://www.investorvillage.com/smbd.asp?mb=144&mn=86399&pt=msg&mid=11176166

I had been with Lind-Waldock (later MFG) 29 years. Started trading corn, beans & wheat.

About 5 years ago I had 90k in my account and something blew up. I thought the worst but in the end there was no effect on my "segregated trading account". Don't remember the details but Jimmy Rogers lost millions in that fiasco. I settled back into confident complacency.

I had a great year going in 2011 trading PMs. Took out & banked over 100k. Then, beginning in AUG (?) I made a few mistakes and I was getting tired so, rather than send money in, I went flat & had MF send me a check for the balance. I was at zero balance when Corzine BK'd the company. God's will I guess.

As to an orchestrated 'hit', I believe something is very, very dirty here. This is not supposed to happen when accounts are marked to market each day and with the backup of the 'Clearing House'. Has anything like this ever happened in the commodity markets?

Second, this has got to be a serious body blow to confidence levels in U.S. markets.

Tho I lost nothing here I am quite upset at what might have been. For me it is a game changer. Got to be thousands of others out there with the same trepidations.

I'm finished with the PTB. Farmland & physical PMs only now.

The End is Near?

cheers,

[rusty apache]

10:53 AM on 11/21/2011

Been into PMs over a year now. Procrastination kept me from doing it even sooner. Glad I did.

[ptomaya]

06:27 PM on 11/20/2011

Why it doesn't surprise me that this cooks in it together, its like a white collar gang, next thing they'll be snatching purses and pick pocketing out in the streets, problem is that they "contribute" to the political campaigns of both the Reps and Dems so that makes them good boys who deserve blank checks every time they screw up.

[Natalie Novoa]

03:58 PM on 11/20/2011

Please help put these big banks away for good. Sign and share this petition:

http://www.change.org/petitions/national-unemployment-agency-of-labor-remove-mandatory-must-join-big-banks-to-receive-unemployment-benefits