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Published April 24, 2013, 11:41 AM

Trustee sues MF Global executives over firm's collapse

A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, claiming they were “grossly negligent” in the lead-up to the brokerage firm’s collapse.

By: Ben Protess , New York Times New Service

A bankruptcy trustee has sued Jon S. Corzine and other former MF Global executives, claiming they were “grossly negligent” in the lead-up to the brokerage firm’s collapse.

The action by the trustee, Louis J. Freeh, comes just weeks after he agreed to postpone the lawsuit and enter mediation with Corzine. By filing litigation that appeared to catch the MF Global executives off-guard, Freeh may have jeopardized those talks.

“We question why the trustee chose to file this lawsuit, which is filled with seriously flawed allegations, while he is participating in court-ordered mediation of these very claims,” says a spokesman for Corzine, Steven Goldberg.

Freeh, who represents hedge funds and other creditors of MF Global, said April 23 that “the mediation process is ongoing,” and that it was “in the best interests of the Chapter 11 estates to file the complaint.”

The lawsuit, filed in U.S. Bankruptcy Court for the Southern District of New York late Monday, echoes a report Freeh recently issued that blamed MF Global executives for engineering a “risky business strategy.” The report and the suit accuse them of allowing more than $1 billion in customer money to disappear from the firm.

In the new complaint, Freeh took aim at Corzine, who became MF Global’s chief executive in 2010. Freeh also sued two of Corzine’s top deputies: Bradley I. Abelow, the chief operating officer, and Henri J. Steenkamp, the chief financial officer.

“Defendants, in their capacities as officers, breached their fiduciary duties of care, loyalty, and oversight over the company, and failed to act in good faith,” Freeh wrote.

The action against Abelow and Steenkamp is unusual in that both executives remained at MF Global after the firm’s collapse, working under Freeh. They stayed to help sort through the bankruptcy process.

Gary P. Naftalis, a lawyer for Abelow, noted that Freeh described that work as “invaluable.”

Goldberg, the spokesman for Corzine, also said the assertions in the suit were unsubstantiated.

It is unclear whether the lawsuit will alter the mediation talks. The litigation might also complicate an effort to return money to customers. Freeh pursued his own case against Corzine, rather than join an earlier lawsuit filed by a second MF Global trustee, James W. Giddens, and some customers. Giddens, who has the task of recovering money for the customers, has already returned about 89 percent of the shortfall to MF Global’s clients in the United States.

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