M.F. Global: New Class Action by Montana Farmers Alleges Client Accounts Raided to Conceal Massive Losses

The approval of a $90 million settlement late last year between investors and the embattled M.F. Global company (see Rubin v. MF Global, No. 1:08-cv-02233 (S.D. N.Y. Nov. 18, 2011) (final order and judgment)) appears to have been only the beginning of litigation aimed at the bankrupt derivatives broker.  Last week, farmers representing as many as 38,000 putative class members filed a lawsuit against MF Global and others, including the brokerage house J.P. Morgan, and auditors PricewaterhouseCoopers.  The plaintiffs allege that their accounts were among those raided by M.F. Global in an effort to conceal its massive losses.  See Complaint, Klinker v. J.P. Morgan Chase & Co., No. 9:12-cv-00005 (D. Mont. Jan. 9, 2012) (available here).

The contracts between the putative class members and M.F. Global provided that customer funds would not be commingled with the firm’s monies.  Id. at ¶¶ 8-13.  However, the plaintiffs allege that MF Global lost huge sums in bad investments on European government bonds, and tried to cover its losses by stealing from segregated customer accounts.  Id. at ¶¶ 80-85.  MF Global then purchased additional, distressed European assets with clients’ money.  Id. at ¶ 53.

The Klinker matter is expected to receive considerable media coverage in part because the plaintiffs named MF Globale’s former CEO, John Corzine, as a defendant.  Id. at ¶¶ 26, 37.  Mr. Corzine served as a United States Senator from New Jersey from 2001 to 2006.