Banks sued for alleged misrepresentation
Updated: 2011-11-21 07:56
By Joel Rosenblatt (China Daily)
SAN FRANCISCO - JPMorgan Chase & Co and Goldman Sachs Group Inc units were sued by two pension funds over claims they made misleading statements about the exposure of MF Global Holdings Ltd securities to European sovereign debt.
As a result of the misstatements, MF Global's stock traded at "artificially inflated prices", the funds said in the complaint filed in a federal court in Manhattan. "While the extent of MF Global's exposure to European sovereign debt was concealed, the defendants were able to raise some $900 million in the offerings."
MF Global Holdings, which was run by former Goldman Sachs Group Inc co-chief executive officer Jon Corzine, filed for bankruptcy on Oct 31 after making bets on sovereign debt and getting margin calls. The New York-based company listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers. The broker-dealer is being liquidated separately.
Other companies named as defendants in the complaint were Bank of America Corp's Merrill Lynch unit, Citigroup Global Markets Inc, Deutsche Bank Securities Inc, RBS Securities Inc and Jefferies & Co. Corzine and MF Global officers were also named as defendants.
The complaint was filed by IBEW Local 90 Pension Fund and the Plumbers & Pipefitters' Local #562 Pension Fund. The funds seek to represent other shareholders in a class action, or group suit.
David Wells, a spokesman for New York-based Goldman Sachs, declined to comment. Shirley Norton, a spokeswoman for Bank of America, based in Charlotte, North Carolina, and Joseph Evangelisti, a spokesman for New York-based JPMorgan, didn't immediately return calls after regular business hours seeking comment on the lawsuit.
The broker-dealer unit of MF Global Holdings is being liquidated separately. The trustee liquidating MF Global Inc said on Friday distributions of collateral in customers' accounts are "dependent upon assets available and there is no assurance of a 100 percent return".
The trustee, James Giddens, received court permission on Nov 17 to transfer $520 million in assets to about 23,300 accounts. While planning a third transfer to include a "few hundred" accounts that haven't had distributions so far, Giddens said the assets available for segregated commodities accounts are "substantially less" than his estimate of claims that will be allowed.
"Efforts are ongoing to analyze the cause of the shortfall and to seek to remedy it in coordination with multiple regulators and law enforcement officials," he said in a statement.
The broker-dealer's bankrupt parent moved hundreds of millions of dollars from its futures client accounts to other accounts before its bankruptcy filing, according to a person familiar with the audit of the company, who declined to be identified because the discussions are private.
MF Global Holdings was required to segregate funds posted as collateral by futures clients. The company filed the eighth-largest US bankruptcy after making a $6.3 billion bet on eurobonds and getting margin calls.
Giddens, whose first transfer of assets was almost $1.6 billion, said the third payment might be a bulk transfer to bring the value of collateral to 60 percent of the net equity in the accounts of all claimants, including those who have received nothing yet. A bulk transfer depends on finding futures brokers to receive the assets, he said.
(China Daily 11/21/2011 page14)