MF Global and its former auditor, PricewaterhouseCoopers, on Thursday notified a judge that they settled their malpractice lawsuit last night, putting to rest one of the last big legal battles related to the demise of the failed brokerage more than five years ago.
Litigation trustee Nader Tavakoli and MF Global's bankruptcy administrator had sought $3 billion in damages from PwC over what it alleged to be improper advice to keep $6.3 billion worth of European sovereign debt off its balance sheet. The dispute went to trial, where Jon Corzine, the former chief executive of MF Global as well as former New Jersey governor, testified as a witness.
The amount of Thursday's announced settlement was not disclosed, but both parties said that the suit was settled to their mutual satisfaction.
During the trial, which was in its third week, attorneys for MF Global's administrator attempted to explain to a jury that PwC's negligence caused massive damages to the firm. When MF Global more fully disclosed the $6.3 billion in European sovereign debt during the third quarter of 2011, it sparked a crisis of confidence in the markets, which led to the eventual collapse of the firm in October 2011, the administrator alleged.
Attorneys for MF Global's administrator had almost finished presenting evidence against PwC before the settlement was reached, according to a person with direct knowledge of the matter.
PwC's strategy
PwC's defense centered around the culpability of management — arguing that it was Corzine and his team who were responsible for the accounting decisions that spooked markets and the firm's customers.
Midway through the trial, lawyers for PwC called for a mistrial, arguing that MF Global had shifted its claims of causation for the demise by focusing first on the European sovereign bonds and then on the firm's overall accounting strategy. U.S. District Judge Victor Marrero, who was overseeing the case, rejected the call.
Corzine, who now runs a family office and teaches at Fairleigh Dickinson University, has avoided speaking publicly about the end of MF Global. He was called to testify at several congressional hearings after the collapse of the firm.
He testified for two and a half days about the investment strategies that were used in his efforts to turn around the firm when he took the helm less than a year before it collapsed.
Corzine, who had previously served as the CEO of Goldman Sachs, stood by the heavy investments in European sovereign debt through "repurchase-to-maturity" transactions. MF Global's $6.3 billion European sovereign portfolio contained mostly investment-grade securities, all with short-term maturities, he testified.
Corzine reiterated that all of the bonds ultimately paid in full, and that the firm had never lost money to date on the European sovereign positions. All customer funds had also been returned.