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Tuesday, Apr 23, 2013 4:02 PM UTC

Jon Corzine sued over MF Global collapse

A bankruptcy trustee said Corzine and two other executives were “grossly negligent”

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Topics: Jon Corzine, MF Global, FBI, New Jersey, Wall Street, ,

Jon Corzine sued over MF Global collapse(Credit: AP Photo/Susan Walsh)

Louis J. Freeh, a bankruptcy trustee for MF Global, sued former New Jersey governor and former MF Global CEO Jon Corzine and two other former executives of the firm, claiming they were “grossly negligent” in the days leading up to the firm’s collapse.

The New York Times reports:

The lawsuit, which could help Mr. Freeh recover money for MF Global’s creditors, blamed Mr. Corzine for ramping up a risky bet on European debt. While the bonds were not by themselves to blame for the collapse of MF Global, the wager spooked the firm’s investors and ratings agencies, pushing it further into a tailspin.

“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,” Mr. Freeh said.

“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,” Freeh wrote in the complaint.

MF Global declared bankruptcy in October 2011, shortly after the firm repurchased $6.4 billion in European sovereign debt issued by some of the countries hit hardest by the financial crisis, such as Ireland, Italy and Spain. During an attempt to sell off the firm, an estimated $1.2 billion in customer funds was discovered to have gone missing.

CNN reports:

Freeh, a former FBI director, is one of two court-appointed trustees trying to recover money lost by MF Global. The other is James Giddens, who is involved with a case over the brokerage unit of MF Global. Freeh’s concern is the holding company.

Giddens has already joined a class action lawsuit brought by clients of MF Global who are seeking to recover money they say the firm improperly used for its own trades.

Jillian Rayfield is an Assistant News Editor for Salon, focusing on politics. Follow her on Twitter at @jillrayfield or email her at jrayfield@salon.com. More Jillian Rayfield.

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