(Reuters) - Jon Corzine was sued by the bankruptcy trustee liquidating MF Global Holdings Ltd MFGLQ.PK, who accused the former chief executive of negligently pursuing a high-risk business strategy that culminated in the commodities brokerage's destruction.
The trustee, Louis Freeh, said in the lawsuit that Corzine and two top deputies overhauled MF Global's business without addressing "systemic weaknesses" in oversight and monitoring.
Freeh said the officials breached their fiduciary duties to shareholders and failed to act in good faith, wiping out more than $1 billion in value by the time of MF Global's October 31, 2011, bankruptcy.
"The company's procedures and controls for monitoring risk were lacking and in disrepair," Freeh said in the lawsuit, filed on Monday night in U.S. Bankruptcy Court in Manhattan. "Corzine engaged in risky trading strategies that strained the company's liquidity and could not be properly monitored."
The lawsuit seeks unspecified damages that could be used to pay creditors of MF Global, whose bankruptcy remains the eighth-largest in U.S. history, according to BankruptcyData.com.
Freeh's case adds to legal troubles for Corzine, who faces lawsuits in U.S. District Court in Manhattan by former shareholders of MF Global and by former commodity customers of its brokerage unit. The latter case has drawn support from James Giddens, the trustee recovering money for commodities customers.
Corzine, 66, is a former Goldman Sachs (GS.N) chairman and former Democratic governor and senator from New Jersey.
The other defendants in Freeh's lawsuit are Bradley Abelow, who was MF Global's chief operating officer, and Henri Steenkamp, its former chief financial officer.
Corzine spokesman Steven Goldberg called Freeh's lawsuit a case of "Monday morning quarterbacking" filled with "seriously flawed allegations," and said there was no basis to claim that Corzine breached his fiduciary duties or was negligent.
Abelow's lawyer, Gary Naftalis, said the allegations lack any factual or legal basis, and that his client "did not cause any losses or contribute in any way to the collapse of the company."
Lee Richards, a lawyer for Steenkamp, did not immediately respond to requests for comment.
Federal regulators including the Commodity Futures Trading Commission are still examining MF Global's collapse, but have not accused Corzine of wrongdoing.
A CFTC spokesman declined on Tuesday to comment.
The extent to which insurance might cover any damage awards or settlements in the litigation was not immediately clear.
Last April, U.S. Bankruptcy Judge Martin Glenn in Manhattan said Corzine and other officials may tap insurance money to defend against lawsuits.
Frederick Grede, the trustee for suburban Chicago futures brokerage Sentinel Management Group, which failed in 2007, said some laws could shield assets of Corzine and others, such as retirement accounts and primary residences, from litigation.
"I don't think Corzine will wind up penniless," he said.
Freeh's lawsuit echoed criticisms he raised in an April 4 report on MF Global's collapse. At the time, he delayed filing the lawsuit, citing mediation with Corzine.
Corzine's spokesman said the mediation is continuing.
A lawyer for Freeh did not respond to a request for comment.
Corzine had sought to transform MF Global into a global investment bank, with a strategy that included a $6.3 billion bet on sovereign debt of countries such as Belgium, Ireland, Italy, Portugal and Spain.
But as Europe's economy weakened, MF Global was forced to meet margin calls, and regulators learned that money in customer trading accounts had been used to cover liquidity shortfalls.
The end came after the European sovereign debt wager and high leverage ratio spooked markets and credit rating agencies.
But Freeh said MF Global even then missed opportunities to curb its losses.
MF Global also came under intense scrutiny, including in Washington, after about $1.6 billion went missing from commodities customers' accounts.
But much of that has been recovered, and Giddens has said he expects to recover 93 percent of commodities customers' funds.
On April 5, the Manhattan bankruptcy court approved MF Global's liquidation plan, with unsecured creditors recovering as much as 34 cents on the dollar.
In the wake of MF Global's collapse, the CFTC proposed rules to better protect client funds and improve oversight by the commodities industry's self-regulatory bodies, CME Group Inc (CME.O) and the National Futures Association.
"Anyone who violates the law, and particularly anyone at MF Global who used a billion bucks of customer cash that should have been protected, should be punished appropriately," CFTC Commissioner Bart Chilton said in a statement discussing Freeh's lawsuit.
The case is Freeh et al v. Corzine et al, U.S. Bankruptcy Court, Southern District of New York, No. 13-ap-01333. The main bankruptcy case is In re: MF Global Holdings Ltd in the same court, No. 11-15059. Other cases are included at In re: MF Global Holdings Ltd Securities Litigation, U.S. District Court, Southern District of New York, No. 11-07866.
Reporting by Jonathan Stempel in New York; additional reporting by Nick Brown in New York and Douwe Miedema in Washington; editing by Martha Graybow, Sofina Mirza-Reid, John Wallace and Matthew Lewis