Plaintiffs lawyers accusing the bankrupt securities firm MF Global of bilking customers out of $1.6 billion have expanded their civil suit with new claims against the auditing giant PricewaterhouseCoopers.
On Monday the plaintiffs filed a consolidated amended class action complaint in the Southern District, adding both PwC and the futures and derivates exchange company CME Group as defendants. Co-lead counsel for the plaintiffs at Berger & Montague and Entwistle & Cappucci claim PwC and CME didn’t do enough to detect wrongdoing by MF Global’s executives and protect customer funds before MF Global declared bankruptcy in October 2011.
The plaintiffs also accuse ex-MF Global CEO Jon Corzine, who is represented by Dechert, and other MF Global executives of dipping into customer funds during the summer of 2011 in order to cover liquidity shortfalls.
Other firms representing MF Global executives include Richards Kibbe & Orbe; Kramer Levin Naftalis & Frankel; Lankler Siffert & Wohl; Steptoe & Johnson; Robinson McDonald & Canna; and De Feis O’Connell & Rose.
The amended complaint points to an audit performed by PwC for the fiscal year ending in March 2011, alleging that the auditor should have probed MF Global’s internal controls related to financial reporting and tested its ability to safeguard customer funds. While the liquidity crisis that sank the company didn’t unfold until the summer of 2011, the complaint maintains that PwC’s failure to put safeguards in place was a direct cause of MF Global’s collapse. The plaintiffs claim that CME failed to ensure that MF Global lived up to the rules of its own exchanges and to its regulatory obligations.
“The Consolidated Amended Complaint calls PwC to account for its failure to properly carry out its professional responsibilities, including in connection with its specific obligation to assure and report on the existence of required safeguards and internal controls to protect segregated customer funds,” said Andrew Entwistle of Entwistle & Cappucci in a statement.
The customers could have an uphill battle, especially given the legal landscape in New York. In October 2010, the New York Court of Appeals rejected claims by American International Group shareholders who accused PwC of failing to detect fraud at AIG, finding the claims to be barred by the doctrine of in pari delicto.
PwC has retained King & Spalding partners James Capra and James Cusick in the MF Global case and promised to mount a vigorous defense. “PwC audited the financial statements of MF Global Inc. and reviewed its control activities for safeguarding customer assets as of March 31, 2011 in accordance with professional standards,” the company said in a statement.
“The audit evidence confirmed that MF Global Inc. maintained customer assets in accordance with the applicable SEC and CFTC requirements as of March 31, 2011, and both congressional testimony and the [Securities Investor Protection Corporation] Trustee’s June 2012 report support this conclusion.”
@|Victor Li is a reporter for Litigation Daily, a Law Journal affiliate. He can be reached at email@example.com.