MF Global Sues Accounting Firm PwC For More Than $1 Billion Over Bankruptcy

MF Global alleges that without PwC's accounting advice, the company would have never made the trades that led to its eventual bankruptcy

The parent company MF Global, the brokerage firm lead by Jon Corzine that went bankrupt in November, 2011, sued the company's accounting firm, PwC in federal court in Manhattan today.

The company alleges that PwC showed "extraordinary and egregious professional malpractice and negligence" as the auditor and outside accountants for the brokerage company. The suit specifically blames the accounting firm for allowing the firm to use an accounting treatment for a series of trades on the debt of distressed European countries that ultimately drained the firm of its cash and led to its collapse.

The over $6 billion trade was masterminded, according to several accounts, reports, and lawsuits, by its then-CEO Jon Corzine, the former co-chairman of Goldman Sachs who also served as a New Jersey senator and governor.

In the course of its unraveling, some $1.6 billion that was supposed to be kept in segregated customer accounts was misplaced and a series of lawsuits allege the money was used to prop up the rest of the company. Most of the customer money has since been recovered. MF Global, which had just over $40 billion in assets at the time of its bankruptcy, was one of the largest corporate collapses of all time.

The suit says that MF Global got "flatly erroneous accounting advice" when it came to how it should account for the European debt trade; PwC is alleged to have "negligently advised" MF Global that it could say the trades were sales and record revenue almost two years before the company would actually receive the cash from its investment.

Without the sign-off from PwC that let MF Global account for the trades that way, the suit claims, MF Global "would never have amassed the enormous" exposure to incredibly risky European sovereign debt that ended up bankrupting the company.

The company claims that it lost more than $1 billion thanks to PwC's advice.

"During the two and a half years since the collapse of MF Global, the repo-to-maturity accounting that is the subject of today's complaint has been examined by trustees, regulators and a congressional committee. None of them has found that the accounting for those transactions was incorrect. PwC is disappointed that this meritless claim has been brought," PwC spokesperson Caroline Nolan said in a statement.

MF Global's lawsuit is separate from civil suits against Corzine himself. Earlier this week, Corzine failed to get a district judge in Manhattan to throw out a suit brought against him by MF Global's creditors.

Accounting and auditing firms often receive legal scrutiny following the bankruptcy of companies they work for. Investors in the bankrupt investment bank Lehman Brothers sued Ernst & Young for what it claimed were misstatements in Lehman's financial reports that let the firm hide the true condition of its balance sheet. The suit was settled late last year for $99 million.

Corzine is also facing suits from MF Global shareholders, as well as the firm's primary regulator, the Commodities Futures Trading Commission. The CFTC's suit against Corzine and the firm's assistant treasurer at the time of its collapse, Edith O'Brien, claims that Corzine was "aware of the firm's true low cash balance" as it was collapsing in late October and ordered his subordinates to move significant amounts of cash around "without inquiring how the firm could come up with the money to do so."

PwC did not immediately respond to a request for comment.

Update: This piece has been updated with comment from a PwC spokesperson.

Skip to footer