PwC settles midtrial in MF Global accounting malpractice case
New York Law Journal
23 March 2017
The multibillion-dollar fight between the bankruptcy administrator for
MF Global and PricewaterhouseCoopers over accounting for European
sovereign debt has been settled midtrial.
The settlement was reached late Wednesday and the parties informed
Judge Victor Marrero Thursday morning. Terms of the deal were not
disclosed and there is no indication how much PricewaterhouseCoopers
paid to settle accounting malpractice claims for its role in advising
the doomed MF Global and its then-head Jon Corzine on how to book the
purchase of the debt of five European countries in 2010 and 2011.
The settlement came just over three weeks into a trial in which
Corzine, the former co-chairman of Goldman Sachs and New Jersey
governor and senator who was called in to turn around MF Global in
2010, testified before the jury in Marrero's courtroom (NYLJ, March 9).
Corzine said MF Global relied on the advice of PricewaterhouseCoopers
every step of the way and it was market turmoil and a crisis of
confidence that sank the company. He implied in his testimony that
revelations that MF Global was using off-balance-sheet accounting,
endorsed by PwC, helped finish off the company in October 2011.
a "CYA" (Cover Your Audit) by the firm
Daniel Fetterman, a partner at Kasowitz, Benson, Torres & Friedman
representing MF Global, alleged that errors by the accounting giant on
how to treat some $6.3 billion in transactions, followed by what he
called a "CYA" (Cover Your Audit) by the firm, led to the rush for the
door by investors, lenders and ratings services, propelling MF Global
But James Cusick of King & Spalding, working to fend off a claim
for as much as $3 billion in damages, said PricewaterhouseCoopers
followed correct accounting procedures.
Cusick told the jury in opening arguments that the company's plunge
into insolvency was unrelated to the accounting treatment and instead
was the result of MF Global's "massive investment in Euro bonds, its
risky trading strategy, its unprofitable business and awful market
"It was the strategy itself that was to blame," Cusick said (NYLJ March 7).
The two sides in the case have been circling each other on a settlement
for some time. A last attempt at mediation that postponed the onset of
jury selection for three weeks failed to produce a deal (NYLJ Feb. 24).
Marrero issued a decision last week denying PwC's motion for a mistrial
in the case, holding PwC had plenty of notice on MF Global's theory of
The case, MF Global Holdings v. PricewaterhouseCoopers, 14-cv-02197,
focused on how much risk Corzine and his team authorized as they made
escalating bets on the bonds of Italy, Spain, Portugal, Belgium and
Ireland, bets they made based on the assumption that the European Union
would make good on the debt.
That assumption proved correct and Corzine, who has been forced to pay
a $5 million fine, accept a ban on commodities and futures trading and
pay millions more in a settlement with creditors, was able to tell the
jury that each bond paid off.
But he was not allowed to opine directly that the company's failure was
the fault of PwC for green-lighting off-balance-sheet accounting for
When Fetterman co-counsel Stephen Sorensen of Thomas, Alexander,
Forrester & Sorensen asked Corzine if PwC had told him the
accounting treatment was risky, would he have done anything
differently—and asked if the Euro bond investments had been on the
balance sheet, would MF Global still have collapsed—Marrero sustained
But Corzine was able to suggest that it was a lack of market confidence
that led to unjustified credit downgrades, and off-balance-sheet
accounting was one of the contributors to that.
Corzine testified about how he and his people approved the method of
booking the repurchase-to-maturity bond transactions for accounting
purposes after a "full discussion" with PwC, MF Global's internal staff
and the company's internal audit committee.
"Did the fact that PwC signed off on this give you comfort?" Sorensen asked him.
"It gave me comfort," Corzine said. "And the audit committee."
Representatives on both sides said the case was "settled to the mutual satisfaction of the parties."
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