More On Legal & Compliancefrom The Advisor's Professional Library
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Former and current employees of bankrupt MF Global have brought suit against the executives of the firm, alleging that misrepresentations were made that destroyed company stock values. The employees are seeking class action status.
Reuters reported that two employees filed suit Monday in federal court in Manhattan against former CEO Jon Corzine; Randy MacDonald, former head of retail; Bradley Abelow, former COO; and former CFO Henri Steenkamp, in addition to eight other executives. The suit charges that Corzine and the named executives "did not disclose the crippling effect" of $6.3 billion in bets on European debt.
Steenkamp, according to the suit, said in a May conference call that the positions carried only "minimal" risk. It also alleged that Corzine said during conference calls that MF Global had put in place "robust" risk-management strategies, and that he had put measures in place to ensure the company would not be undercapitalized.
The employees also seek class-action status for the suit on behalf of any current or former MF Global worker who bought company shares through stock purchase plans since mid-2010.
Far from being adequately capitalized, MF Global was severely undercapitalized and overleveraged; the employees say that the firm had been warned about its capital levels by FINRA. The complaint seeks damages and attorneys' fees, and asserts two federal securities counts and a state law show the defendants breached a fiduciary duty.
The employees say in the suit that while at the earliest purchase date for inclusion in the proposed class action, May 20 of 2010, MF Global's stock price was about $8 it had fallen to $0.23 by Nov. 3, one week after the company was downgraded to junk status by Moody's and Fitch Ratings. Employees purchased shares of company stock through ESOPs at approximately 15% under market value, according to the filing.
For more on MF Global read Senators Bash CFTC's Gensler Over MF Global Collapse on AdvisorOne.