Former COO Abelow, CFO Steenkamp Also Named.

[ by Melanie Gretchen and Howard Haykin ]

"Gross negligence" on the part of former MF Global chief executive Jon Corzine and "Corzine's handpicked deputies" led to the demise of MF Global, according to a lawsuit filed by Trustee Louis Freeh.  Weeks ago, Mr. Freeh had agreed - but failed - to postpone the lawsuit and enter into mediation with Mr. Corzine, the trustee has resumed legal action against Mr. Corzine, Mr. Abelow and Mr. Steenkamp. 

Mr. Freeh, who filed his complaint in U.S. Bankruptcy Court in Manhattan late Monday, made the following statement in his complaint:

"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.  Corzine engaged in risky trading strategies that strained the company’s liquidity and could not be properly monitored by the company’s inadequate controls and procedures."

Parallels Freeh's Report Issued This Month.   While Mr. Freeh blamed senior management for engineering a "risky business strategy" on European debt and ignoring "glaring deficiencies" in internal controls, the trustee reserved his greatest criticism for Mr. Corzine, who took over as Chief Executive of MF Global in 2010.  The report and the lawsuit accuse all 3 executives of allowing more than $1 billion in customer money to disappear from the firm.

A spokesman for Mr. Corzine questioned why the trustee chose to file the lawsuit, which he said was filled with seriously flawed allegations, while participating in court-order mediation of these very claims. 

Surprising That Abelow and Steenkamp Are Named in Lawsuit.   Including Bradley Abelow and Henri Steenkamp in the lawsuit was viewed as unusual, because both remained at MF Global to assist Mr. Freeh in sorting through the bankruptcy process.  Gary Naftalis, who is representing Mr. Abelow, pointed out that Mr. Freeh had described that work as "invaluable." Mr. Naftalis also criticized Mr. Freeh for "now making allegations that lack any factual or legal basis." 

A successful outcome in this lawsuit could help Mr. Freeh recover money for MF Global’s creditors.  By early April, MF Global’s U.S. customers had recovered about 89% of their shortfall.
 

For further details, go to [Dealbook, 4/23/13].