You are suing Corzine and other directors, but not the company. Why?
Zamansky: The employees are owed a fiduciary duty by the company and the board of directors. We can't bring a suit against the company because of the bankruptcy, so we're proceeding against the directors.
What was the breach of duty?
Zamansky: Corzine started an employee stock purchase plan. The company encouraged people to contribute, by giving them a 15% discount. And most people received bonuses in stock. They were required, really, to take part of their compensation in stock.
This allowed Corzine to take bigger bets. If I were an employee, I would want to know how at risk my money is.
The suit says statements were "materially false and misleading". Can you characterize the breach? Did they exaggerate? Did they lie?
Zamansky: They lied about their risky bets on European sovereign debt. They lied about the extent of their leverage, which was 40 to 1. And they lied about their internal controls as early as September of 2010.
The matter of internal controls is very important, particularly after the collapse of Lehman in 2008. Investors, including employees, need to know: Is the company on solid financial footing? Are they taking outsize bets? Proprietary trading is allowed, but is not supposed to be the driver of growth. MF Global didn't even segregate client funds.
The company made representations that they were doing business according to law. But they even admitted they didn't segregate client funds; they called it a "shortfall" in client accounts.
There were multiple lawyers of misconduct.
In the suit you say there was a "scheme" to commit fraud. Sounds awfully close to a criminal accusation.
I believe that if there are emails showing Corzine is trying to hide from the public the size and riskiness of his bets, that's securities fraud. If they can show he intended to do that, there could be criminal charges brought.
With MF Global in bankruptcy, what can you expect to recover, and from whom?
Zamansky: There's something like $250k in insurance coverage. We know Corzine is a wealthy man, as are the other directors. We're going to be looking at other potentially responsible parties. We're going to be looking at Price Waterhouse. Where were they in terms of reporting or stopping the failure to segregate the accounts. Where were they in the repo transactions used to disguise the balance sheet. PW is a gatekeeper. They have a function of making sure the accounting is within generally accepted rules. There are also some questions about JP Morgan here. We’ll look at all of that.
What's the process now, what happens next ?
Zamansky: We're going to be assigned to a judge. The defendants will file a motion to dismiss. Given the evidence, I think they'll be unsuccessful.
I also represent employees of Citigroup in a suit against management. It's a similar situation, employees in a stock plan and the stock went way down. In Citi's case, they misrepresented their exposure to toxic mortgage debt. In MF Global's case it was sovereign debt. Citi's motion to dismiss was denied.
Once the motion to dismiss in this case is denied, there will be discovery. And we're going to get all those emails from Corzine.
This was a triple whammy for employees. The stock went to zero and their retirement is lost. They lost their jobs. Now they're trying to get new jobs with MF Global on their resumes, so the future looks bad too. There's a real human cost here.
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