Advice to Bankrupt MF Global Could Cost PwC $1Billion

A federal judge on Wednesday ordered PricewaterhouseCoopers to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the October 2011 bankruptcy of MF Global Holdings Ltd, a brokerage run by former New Jersey Governor Jon Corzine.

U.S. District Judge Victor Marrero in Manhattan said PwC’s advice on “repurchase-to-maturity” transactions through which Corzine bought $6.3 billion of European sovereign debt affected how MF Global implemented its strategy and in turn contributed to its alleged losses.

“This line of causation gives rise to a plausible claim that PwC proximately caused harm to MF Global,” Marrero wrote.

MF Global’s bankruptcy plan administrator sued PwC on March 28, accusing it of professional malpractice for having provided “flatly erroneous” accounting advice to the company. Corzine is not a defendant.

Marrero on Wednesday noted that factors such as how MF Global employees implemented Corzine’s strategy might also have been major causes of the New York-based company’s losses. But he said a jury, not a judge, should sort out who was liable.

The judge did dismiss breach of contract and unjust enrichment claims against PwC.

Caroline Nolan, a PwC spokeswoman, said, “We respectfully disagree” with the decision to let the case go forward.

She also said PwC’s audit of MF Global complied with professional standards, and that MF Global’s treatment of the repurchase-to-maturity transactions was consistent with generally accepted accounting principles.

Daniel Fetterman, a partner at Kasowitz, Benson, Torres & Friedman representing the administrator, said: “We are pleased with Judge Marrero’s well-reasoned decision, and look forward to presenting our case to a jury.”

Before its rapid demise, MF Global had struggled with worries about the sovereign debt, credit rating downgrades, margin calls, and news that money from customer accounts was used to cover liquidity shortfalls.

Brokerage and commodity customers have since recovered nearly all their money.

Marrero on July 9 rejected PwC’s argument that the MF Global administrator “stands in the shoes” of the company under the “in pari delicto” legal doctrine and cannot recover because Corzine and other officials were also at fault.

Corzine is also a former Goldman Sachs co-chairman. He faces other lawsuits over MF Global from investors, customers and U.S. regulators, which Marrero also oversees.

The case is MF Global Holdings Ltd as Plan Administrator v. PricewaterhouseCoopers LLP, U.S. District Court, Southern District of New York, No. 14-02197.

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman and Tom Brown)