PriceWaterhouseCoopers settled a potential $ 3 billion lawsuit brought by MF Global’s bankruptcy administrator mid-trial, ending a case that could have broadened the scope of auditors’ liability in the event of a bankruptcy. companies.
The global accounting firm blamed the mismanagement of former President Jon Corzine, who built a multibillion-dollar portfolio of European sovereign bonds at MF Global just as the US debt rating was downgraded and the peripheral European bond market entered a serious wave of convulsions. The MF Global estate administrator argued that accounting errors, including allowing MF Global to keep the bonds off its balance sheet, precipitated the company’s collapse.
By arranging before the jury had a chance to make a decision, PwC has left open important questions about the extent to which an auditor can be held accountable for his advice on complex accounting matters, which often resist questioning. simple yes or no answer.
“As a settled case, there is no precedent value,” said Jacob Frenkel, member of Dickinson Wright in Washington and former lawyer for the Securities and Exchange Commission. “Where there was a risk of unreasonably expanding the role of an auditor, the law remains as is, which means that auditors provide reasonable assurances on financial statements and are not auditors of business judgment . “
Neither PwC nor MF Global commented on the amount of the settlement other than to say that it was satisfactory to both parties. This puts an end to the last of the lawsuits brought by MF Global against him; PwC settled another lawsuit filed by investors in MF Global for $ 65 million in 2015. It hit a mid-trial settlement of $ 5.5 billion lawsuit on the bankruptcy of mortgage lender Taylor, Bean & Whittaker last year for an undisclosed amount.
MF Global went bankrupt in October 2011 after what was in effect a run on the bank, when its commodity brokerage clients started withdrawing funds and it was hit by margin calls on its portfolio of ‘European bonds of $ 6.3 billion. It soon became clear that the company had also tapped over $ 1 billion in customer deposits in an attempt to support its own liquidity, which it ultimately restored. Corzine, a former Goldman Sachs partner and governor of New Jersey, paid a $ 5 million fine and agreed to a lifetime ban on commodity futures trading for lack of supervision. as part of a settlement with the Commodities Futures Trading Commission earlier this year.
MF Global eventually repaid almost all of its creditors, with the exception of the holders of unsecured bonds. This debt is now mainly in the hands of distressed investors who are ready to recover the proceeds of the settlement. MF Global was prepared to present witnesses who set the losses attributable to PwC at $ 2 billion plus pre-judgment interest. As a private partnership, however, it is not clear whether PwC could pay even a fraction of that amount.
The trial featured several days of testimony from Corzine, a familiar figure with thinning gray hair and well-cut suits, and critical thinking from lawyers on both sides. PwC has resisted calls from U.S. District Judge Victor Marrero to settle the case in pre-trial mediation and requested that the trial be set aside after saying MF Global had changed his theory of the case. The trial was suspended last Wednesday for further talks, which ended with the settlement announced today.