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

First Posted: 11/19/11 10:51 AM ET Updated: 11/19/11 10:51 AM ET

Mf Global

(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.

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Filed by Maxwell Strachan  |