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NEW YORK (Reuters) - Jon Corzine, the former MF Global Holdings Ltd chief executive, and two former colleagues failed to win the dismissal of a lawsuit by a trustee seeking to hold them responsible for the futures brokerage's rapid demise and bankruptcy.
U.S. District Judge Victor Marrero in Manhattan said on Monday the trustee may pursue damages over claims that Corzine, former chief operating officer Bradley Abelow and former chief financial officer Henri Steenkamp breached their duties of care and loyalty to the company.
"Defendants and other MF Global officers repeatedly increased the company's exposure to risky bets on sovereign debt and shuffled funds among MF Global's subsidiaries to cover a growing liquidity crisis," Marrero wrote. "These facts give rise to reasonable inferences that defendants acted in bad faith."
The judge did not rule on the case's merits.
MF Global went bankrupt on October 31, 2011 in the wake of margin calls, market worries about its $6.3 billion sovereign debt wager, and the discovery by regulators that money in customer accounts had been used to cover liquidity shortfalls.
Lawyers for Corzine, Abelow and Steenkamp did not immediately respond on Tuesday to requests for comment.
Corzine is a former state governor and U.S. senator from New Jersey, and former co-chairman of Goldman Sachs.
In court papers, the defendants had argued that the trustee could not prevail simply by second-guessing their decisions, and that his claims showed not that they consciously disregarded their duties, but instead "actively fulfilled" them.
The lawsuit had originally been brought in the federal bankruptcy court in Manhattan last April by court-appointed trustee Louis Freeh, the former FBI director.
Freeh later assigned his claims to litigation trustee Nader Tavakoli, and the case was moved to the district court.
Marrero has in the last five months also refused to dismiss lawsuits against Corzine and other MF Global officials by the Commodity Futures Trading Commission, commodities customers, and investors in the company's stock and bonds.
The case is In re: MF Global Holdings Ltd et al, U.S. District Court, Southern District of New York, No. 11-07866. The bankruptcy case is Tavakoli v. Corzine et al, U.S. Bankruptcy Court, Southern District of New York No. 13-ap-01333.
Reporting by Jonathan Stempel in New York; Editing by Stephen Powell