UPDATE 2-Corzine, banks fail to win dismissal of MF Global lawsuit

Tue Nov 12, 2013 4:06pm EST
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* Shareholders, bondholders filed lawsuit over 2011 bankruptcy

* Corzine, others accused of hiding MF Global risks

By Jonathan Stempel

NEW YORK, Nov 12 (Reuters) - A federal judge on Tuesday rejected a bid by former MF Global Holdings Ltd chief executive Jon Corzine to dismiss investor litigation seeking to hold him, other executives and many banks responsible for the futures brokerage's rapid collapse.

In a sometimes acerbic decision that likened MF Global's demise to a "massive train wreck," U.S. District Judge Victor Marrero in Manhattan rejected the defendants' contention that the company's Oct. 31, 2011, bankruptcy was beyond their control, and not the product of securities fraud.

"Defendants seem convinced that no one named in this lawsuit could possibly have done anything wrong," Marrero said in a 105-page decision. "Defendants' contentions would suggest that ... perhaps the debacle must have been the fateful work of supernatural forces, or else that the explanation for a spectacular multi-billion dollar crash of a global corporate giant is simply that 'stuff happens.'"

Former stockholders and bondholders led by the Virginia Retirement System and the province of Alberta, Canada, accused MF Global of inflating its ability to manage risk, obscuring the risks of its big bet on European sovereign debt, and improperly accounting for deferred tax assets.

While not ruling on the merits, Marrero said the claims carried "an added measure of reliability and plausibility" by drawing from investigations by government regulators and Congressional committees into MF Global's bankruptcy, one of the 10 largest in U.S. history.

Other defendants included former MF Global chief financial officers J. Randy MacDonald and Henri Steenkamp, and seven former independent directors.   Continued...