PwC Must Face $1B Lawsuit Related for Role in MF Global Collapse: Judge

July 9, 2014 by Jonathan Stempel

A federal judge on Wednesday rejected PricewaterhouseCoopers’ request to dismiss a $1 billion lawsuit accusing the auditor of providing bad accounting advice that contributed to the October 2011 collapse of MF Global Holdings Ltd, a brokerage run by former New Jersey Governor Jon Corzine.

U.S. District Judge Victor Marrero rejected PwC’s argument that the MF Global’s bankruptcy plan administrator, which brought the lawsuit, “stands in the shoes” of the company under the “in pari delicto” legal doctrine, and cannot recover because Corzine and other officials were also to blame for the collapse.

Marrero has yet to review other PwC arguments for dismissal, including that the administrator had no authority to sue and did not show that the accounting advice was a “proximate” cause of MF Global’s bankruptcy.

A PwC spokesman had no immediate comment. The auditor’s lawyer did not immediately respond to a request for comment.

The March 28 lawsuit accused PwC of professional malpractice for providing “flatly erroneous” advice on how to account for Corzine’s $6.3 billion investment in European sovereign debt.

Marrero said that while MF Global may have provided information used to formulate that advice, the complaint did not suggest it had an “active, voluntary” role in the advice or was a “willing participant” in unlawful conduct related to it.

“Under PwC’s reasoning, the in pari delicto doctrine would insulate an auditor from liability whenever a company pursues a failed investment strategy after receiving wrongful advice from an accountant,” Marrero wrote. “Such a broad reading of the doctrine would effectively put an end to all professional malpractice actions against accountants.”

Prior to its Oct. 31, 2011 bankruptcy, MF Global had struggled with worries about the sovereign debt, margin calls, credit rating downgrades, and news that money from customer accounts was used to cover liquidity shortfalls.

Corzine is also a former Goldman Sachs co-chairman. He is not a defendant in the PwC case but faces other lawsuits over MF Global from investors, customers and U.S. regulators.

The case is MF Global Holdings Ltd as Plan Administrator v. PricewaterhouseCoopers LLP, U.S. District Court, Southern District of New York, No. 14-02197.

(Reporting by Jonathan Stempel in New York)