1 

MORRISON & FOERSTER LLP 

2000 Pennsylvania Ave., NW 

Washington, DC 20006-1888 

Tel.: (202) 887-1500 

Fax: (202) 887-0763 

Adam S. Hoffinger 

Daniel A. Nathan 

1290 Avenue of the Americas 

New York, NY 10140-0050 

Tel.: (212) 468-8000 

Fax: (212) 468-7900 

Brett H. Miller 

Attorneys for Chapter 11 Trustee, Louis J. Freeh 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

In re 

MF GLOBAL HOLDINGS LTD., et al.,

 Debtors. 

Chapter 11 

Case No. 11-15059 (MG) 

(Jointly Administered) 

LOUIS J. FREEH, AS CHAPTER 11 

TRUSTEE OF MF GLOBAL HOLDINGS 

LTD., et al., 

 Plaintiff, 

v. 

JON S. CORZINE, BRADLEY I. ABELOW, 

AND HENRI J. STEENKAMP, 

 Defendants. 

Adv. Pro. No. _________________ 

COMPLAINT 

Plaintiff Louis J. Freeh (the “Trustee”), as chapter 11 Trustee of MF Global Holdings 

Ltd. (“Holdings Ltd.”), MF Global Finance USA, Inc. (“FinCo”), MF Global Capital LLC 

(“Capital”), MF Global FX Clear LLC (“FX Clear”), MF Global Market Services LLC 

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(“Market Services”), and MF Global Holdings USA Inc. (individually, “Holdings USA,” and 

collectively with Holdings Ltd., FinCo, Capital, FX Clear and Market Services, the 

“Debtors,” and together with their affiliates and subsidiaries wherever located, “MF Global” or 

the “Company”),1

 by and through his counsel, Morrison & Foerster LLP, for his complaint (the 

“Complaint”) against Jon S. Corzine (“Defendant Corzine” or “Corzine”), Bradley I. Abelow 

(“Defendant Abelow” or “Abelow”), and Henri J. Steenkamp (“Defendant Steenkamp” or 

“Steenkamp,” and together with Corzine and Abelow, “Defendants”), alleges the following: 

SUMMARY 

1. The Trustee brings this action against Defendants for acts and omissions that 

culminated in the business collapse of the Company and the bankruptcies of the Debtors. As 

detailed herein, 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. 

2. During the period when Defendants were running MF Global, they dramatically 

changed the Company’s business plan without addressing existing systemic weaknesses that 

ultimately caused the plan to fail. As part of the new business plan, and in violation of his 

fiduciary duties to MF Global as the Chief Executive Officer (“CEO”) of Holdings Ltd. and MF 

Global Inc. (“MFGI”), Defendant 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. Defendants Abelow and Steenkamp, Corzine’s hand-picked deputies and the 

Company’s most senior officers, breached their fiduciary duties by failing to ensure that the 

 

1 The following are the U.S. subsidiaries and affiliates (along with the last four digits of each of 

their federal taxpayer identification numbers) that have filed petitions for relief and whose cases 

are being jointly administered with the case of MF Global Holdings Ltd. (1260); MF Global 

Finance USA, Inc. (4890); MF Global Capital LLC (2825); MF Global FX Clear LLC (3678); 

MF Global Market Services LLC (2193); and MF Global Holdings USA Inc. (2847). 

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Company’s procedures and controls were adequate and could accommodate the Company’s new 

business plan. 

3. When Defendant Corzine joined Holdings Ltd. in March 2010, MFGI, an indirect 

subsidiary of Holdings Ltd. operating in the United States, was the primary operating business of 

the Company. MFGI had separate broker-dealer (“B/D”) and futures commission merchant 

(“FCM”) businesses. At that time, MFGI earned revenues primarily (1) through commissions 

earned from executing customer orders, and (2) from interest earned on customer funds and its 

matched repo book. The Company’s dependence on interest rates for revenues, at a time when 

interest rates were low and steadily declining, had led to five consecutive quarters of losses and 

had caught the attention of the credit rating agencies. 

4. In September 2010, Defendant Corzine hired Defendant Abelow to be the Chief 

Operating Officer (“COO”) and Executive Vice President (and later President) of Holdings Ltd. 

In April 2011, Corzine promoted Defendant Steenkamp, the Company’s then-Chief Accounting 

Officer and Global Controller, to Chief Financial Officer (“CFO”) of Holdings Ltd. 

5. When Defendants took charge of MF Global’s affairs, its procedures and controls 

were deficient in many ways. During their time running the Company, Defendants failed to 

adequately improve its procedures and controls. For instance, the Company was unable to 

monitor or determine its liquidity accurately in real time, to forecast or stress-test its liquidity, 

and to track and record intra-company transfers of funds between the B/D and FCM operations 

of MFGI. 

6. Despite his knowledge that the Company’s procedures and controls were weak, 

Defendant Corzine quickly began converting the Company to a full-service B/D and investment 

bank. As part of this change in strategy and business expansion, Corzine established a 

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proprietary trading operation that he supervised and participated in extensively. However, as 

Corzine changed and expanded the Company’s business, Defendants failed to improve its 

already deficient systems to accommodate the new and additional risks of this new and larger 

business. 

7. In response to demands from credit rating agencies, in early August 2010, 

Defendant Corzine represented in an earnings call that the Company would return to profitability 

in four to six quarters. To avoid a downgrade by the credit rating agencies and to make good on 

that representation while the Company was transitioning to the new business model, Corzine 

caused MFGI to enter into highly leveraged investments in European sovereign debt using 

repurchase-to-maturity financings (the “Euro RTMs”). The Euro RTMs allowed MFGI to book 

immediate income while financing sovereign debt positions through repurchase agreements, or 

“repos,” that involved selling the securities while concurrently agreeing to repurchase them at a 

specified date in the future and at a specified price. 

8. Defendant Corzine was responsible for all of the Company’s Euro RTM trading. 

After he commenced that trading, Corzine continually increased the amount of such trading to a 

point that severely strained the Company’s liquidity. Indeed, Corzine exceeded limits on such 

trading imposed by the Board of Directors of Holdings Ltd. (the “Board”) on several occasions. 

9. Defendant Corzine’s Euro RTM strategy created significant liquidity risks for the 

Company that ultimately contributed to its downfall. Although the transactions were fully 

financed, the clearinghouses required a payment of margin in the form of cash or other 

acceptable collateral at the time the transaction was executed, and, as conditions changed, 

additional margin could be required. As Defendants knew, under stressed financial conditions 

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the margin demands associated with these positions could increase significantly. Ultimately, 

they did. 

10. Despite their awareness of these risks, Defendants failed to prepare for the risks of 

increased margin calls on the Euro RTM positions. The Company’s Euro RTM positions 

increased from less than $400 million in mid-September 2010 to close to an $8.3 billion net 

position at the end of August 2011. When the underlying European sovereign bonds were 

downgraded during the summer and fall of 2011, the clearinghouses imposed steadily increasing 

margin calls on MFGI. In addition, Defendant Corzine’s outsized European sovereign 

investments caught the attention of at least one of MFGI’s regulators, the Financial Industry 

Regulatory Authority (“FINRA”). FINRA required MFGI to commit additional capital during 

the summer of 2011, further stressing the Company’s already precarious liquidity position. 

11. The new proprietary trading desks established by Defendant Corzine consumed 

additional liquidity. For instance, from early 2011 through the summer of 2011, the Company 

accumulated an increasingly long list of securities that could not be financed with third party 

funds, requiring the Company to finance those securities with its already stretched house funds. 

12. As a result of Defendants’ actions, the Company’s liquidity was depleted by a 

combination of increased margin demands from the Euro RTMs, additional capital requirements 

imposed by FINRA, and the addition of new proprietary trading desks that needed increasing 

amounts of liquidity. 

13. The Company’s procedures and controls for monitoring risk were lacking and in 

disrepair. Throughout their tenures, Defendants were repeatedly warned — in reports, meetings, 

emails, and in-person exchanges — of the failures and need for improvements in the Company’s 

procedures and controls. Yet, instead of taking necessary steps to fix those problems, 

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Defendants – in violation of their fiduciary duties to the Debtors and the Company – pursued an 

even riskier business plan, thereby straining inadequate controls and risk monitoring systems 

beyond their capabilities. Because Defendants failed to implement proper controls and 

procedures, they also had difficulty properly monitoring the Company’s liquidity drain caused by 

its unprecedented high volume of proprietary trading and the Euro RTM strategy. 

14. The Defendants never informed the Board about the Company’s liquidity 

challenges in the Company’s final months, or about any deficiencies in the Company’s ability to 

track liquidity. 

15. When FINRA’s capital demand and unusually large quarterly losses were 

announced in the fall of 2011, the credit rating agencies downgraded the Company’s debt, 

leading to a run on the bank by the Company’s customers and trading counterparties. During the 

last week of its operations, the lack of control over cash and cash movements led the Company to 

lose track of fund transfers and to incur a substantial customer fund shortfall. For example, 

during that week, the Company satisfied its B/D’s needs for additional liquidity by transferring 

customer funds from the FCM. Because of the Company’s deficient systems, members of the 

Company’s Treasury Department were not aware at the time that they were using customer 

funds. 

16. These breaches of Defendants’ fiduciary duties caused: a potential buyer of the 

Company to withdraw from negotiations; the commencement of the Securities Investor 

Protection Act (“SIPA”) liquidation of MFGI; the chapter 11 bankruptcy cases of the Debtors; 

the cessation of MF Global’s business operations; and the destruction of MF Global’s value as a 

going concern. 

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17. These events inflicted material damages on the Debtors and the Company. 

Between Defendant Corzine’s arrival at the Company and the commencement of the 

bankruptcies of the Debtors, MF Global lost well in excess of a billion dollars in value, not 

including any shortfalls in customer funds. 

JURISDICTION AND VENUE 

18. On October 31, 2011, Holdings Ltd. and FinCo filed voluntary petitions for relief 

under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United 

States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On 

December 19, 2011, Capital, FX Clear and Market Services filed voluntary petitions in the 

Bankruptcy Court for relief under chapter 11 of the Bankruptcy Code. On March 2, 2012, 

Holdings USA filed a voluntary petition in the Bankruptcy Court for relief under chapter 11 of 

the Bankruptcy Code. The Debtors’ cases (collectively, the “Chapter 11 Cases”) are jointly 

administered pursuant to Bankruptcy Rule 1015(b) [Docket Nos. 19, 298, 528] in the Bankruptcy 

Court under the caption, In re MF Global Holdings Ltd., et al., Case No. 11-15059 (MG). 

19. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. 

§§ 157 and 1334, and Rule 7001(1) of the Federal Rules of Bankruptcy Procedure (the 

“Bankruptcy Rules”). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 

157(b)(2)(A), (E) and (O). 

20. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. 

THE PARTIES 

Plaintiff 

21. By orders dated November 28, 2011 [Docket No. 170], December 27, 2011 

[Docket No. 306], and March 8, 2012 [Docket No. 548], the Bankruptcy Court appointed Louis 

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J. Freeh to serve as chapter 11 Trustee for each of the Debtors. Sections 1106(a)(3) and (a)(4) of 

the Bankruptcy Code require the Trustee to: 

. . . investigate the acts, conduct, assets, liabilities, and financial 

condition of the debtor, the operation of the debtor’s business and 

the desirability of the continuance of such business, and any other 

matter relevant to the case or to the formulation of a plan; 

. . . including any fact ascertained pertaining to fraud, dishonesty, 

incompetence, misconduct, mismanagement, or irregularity in the 

management of the affairs of the debtor, or to a cause of action 

available to the estate. 

22. Therefore, the Trustee has a duty to investigate and, if necessary, to bring claims 

against the current and former officers and directors of the Company. The Trustee brings this 

Complaint solely in his capacity as the Trustee and not in any other capacity. 

Defendants 

Jon S. Corzine 

23. Defendant Corzine served as Chairman of the Board and CEO of Holdings Ltd. 

and CEO and a Director of MFGI between March 23, 2010, and November 4, 2011, when he 

resigned. Before joining Holdings Ltd., Corzine was Chairman, Senior Partner, and Chief 

Financial Officer at Goldman Sachs, where he spent more than 24 years. Corzine also served as 

United States Senator from New Jersey between 2001 and 2006 and Governor of New Jersey 

from 2006 to 2010. 

24. As MF Global’s CEO, Defendant Corzine was ultimately responsible for the 

Company’s administrative, back office and technology functions, including the adequacy of the 

Company’s risk management and internal controls. (“Back office” generally refers to operations 

and technology units that ensure smooth settlement of transactions and maintenance of a 

company’s technology systems, and includes record keeping, trade confirmation, and trade 

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settlement.) In a May 20, 2010 earnings press release, Corzine stated that he would “ensure the 

appropriate controls are in place” at the Company. During a June 3, 2010 investor conference, 

he stated that risk management is “something that I’ve worked on most of my life and I think that 

we can bring . . . the operations, the systems, [and] the technology to managing risk.” As part of 

his duties, Corzine also stressed his commitment to improving MF Global’s “client facilitation 

efforts” and market execution. 

Bradley I. Abelow 

25. Defendant Abelow joined Holdings Ltd. in September 2010 as COO and 

Executive Vice President, and became Holdings Ltd.’s President in March 2011. Abelow was 

responsible for oversight of the Company’s operations, including the day-to-day execution of the 

Company’s business strategy, and had direct responsibility for operations, including treasury 

operations, information technology, human resources, risk management, procurement and 

facilities management globally, all infrastructure-related functions. When he became President, 

he assumed the additional responsibility of further developing and executing the Company’s new 

strategic direction. 

26. Before joining Holdings Ltd., Abelow served as New Jersey State Treasurer and 

Chief of Staff to Defendant Corzine during Corzine’s tenure as New Jersey’s Governor. He had 

previously been a partner and managing director at Goldman Sachs, where he managed its 

operations division, and prior to that its Asia operations, technology, risk and finance functions. 

While at Goldman Sachs, Abelow served on the Board of Directors of The Depository Trust & 

Clearing Corporation. 

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Henri J. Steenkamp 

27. Defendant Steenkamp served as Holdings Ltd.’s CFO starting in April 2011. 

Prior to that, Steenkamp was Holdings Ltd.’s Chief Accounting Officer and Global Controller 

for four years. Prior to joining the Company, he worked as an external auditor for 

PricewaterhouseCoopers LLP. 

28. As the head of MF Global’s financial operations, Defendant Steenkamp had 

authority over and responsibility for the Company’s financial operations, including treasury, 

accounting, and all global financial control and reporting functions. These functions included 

monitoring liquidity, protecting customer funds, and funding MF Global’s operations, including 

its proprietary trading. 

29. Even before he became CFO, Defendant Steenkamp was responsible for giving 

financial presentations to the Board and designing financial messages supporting Corzine’s 

transition to a new business model and his Euro RTM strategy. 

30. At Board meetings held between May 2010 and February 2011, Steenkamp: (a) 

presented the 2011 proposed budget together with Corzine; (b) addressed various questions 

raised by Board members with respect to revenues and expenses; (c) provided updates regarding 

forecasted results; and (d) at Corzine’s request, discussed a convertible debt offering 

recommended by management. 

31. On January 3, 2011, three months before becoming the Company’s CFO, 

Steenkamp drafted message points on the Euro RTMs for an upcoming Board meeting. 

Additionally, Steenkamp attended all but one of the Board meetings where increases in the risk 

limits associated with the Euro RTM portfolio were discussed. 

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32. At the March 2, 2011 Board meeting, at which the Board resolved to nominate 

Steenkamp as CFO, Steenkamp addressed questions regarding the monthly management 

package, provided the directors with “color” with respect to the February 2011 results, and 

addressed strategy-related rationalization efforts, including the exiting of non-core businesses 

and the restructuring of under-performing products. 

33. At the March 28, 2011 Board meeting, at Corzine’s request, Steenkamp explained 

to the Board the monthly management report with respect to the February 2011 results, 

highlighting net revenues, key drivers, compensation ratios and earnings per share, and discussed 

his view that the Company was better positioned than it had been in the past to take advantage of 

business opportunities as they arose. 

Holdings Ltd., MFGI, and FinCo 

34. Holdings Ltd., a Delaware limited liability company, is a holding company 

headquartered in the United States. In November 2005, the Company’s predecessor, Man Group 

plc, acquired the regulated futures and commodities trading business entities of Refco, Inc. In 

July 2007, Man Group plc consummated an initial public offering and changed its name to MF 

Global Ltd. (which was later changed to MF Global Holdings Ltd., when the company changed 

its place of incorporation from Bermuda to Delaware). Holdings Ltd.’s common stock was 

traded on the New York Stock Exchange. 

35. MFGI, a Delaware corporation, is one of Holdings Ltd.’s principal indirect 

subsidiaries and primary operating businesses. MFGI was registered with the National Futures 

Association as an FCM, and with FINRA as a B/D. 

36. FinCo is MF Global’s financing arm. It provided funding for MF Global’s United 

States subsidiaries, including MFGI. FinCo obtained funds from a variety of sources, including 

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the Company’s revolving credit facilities and capital raises. FinCo also provided funds used by 

MFGI to post margin related to the Euro RTMs. 

FACTUAL ALLEGATIONS 

A. Corzine Joined the Company 

i. MF Global Before Corzine Joined 

37. In February 2008, less than a year after MF Global went public, the Company 

suffered credit rating agency downgrades, customer withdrawals, and a $10 million fine imposed 

by the FCM’s primary regulator, the Commodity Futures Trading Commission (“CFTC”), for 

poor risk management practices. As part of the relief in that case, MF Global was ordered to 

implement the recommendations of an outside consultant that reviewed MF Global’s internal 

controls related to compliance, risk management processes, IT infrastructure, and corporate 

governance. 

ii. Corzine Changed Senior Personnel 

38. After Defendant Corzine was named CEO and Chairman of MF Global in March 

2010, he surrounded himself with persons he trusted to support his business plan. He recruited 

and hired Defendant Abelow as COO in September 2010. Although Randy MacDonald 

(“MacDonald”) was the Company’s CFO, Corzine began to rely upon Defendant Steenkamp, 

the Company’s Chief Accounting Officer. In April 2011, Corzine replaced MacDonald as CFO 

with Steenkamp. 

39. In addition, within a year of his arrival, Defendant Corzine caused the Company 

to replace the Company’s Chief Risk Officer (“CRO”), Michael Roseman (“Roseman”), with 

Michael Stockman (“Stockman”). According to its Enterprise Risk Policy (the “Risk Policy”), 

which documents MF Global’s Enterprise Risk Management approach and framework, MF 

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Global’s CRO oversaw the Company’s risk matters, and had “global responsibility for 

controlling credit, market, operational, concentration, capital, and liquidity risks” and primary 

authority, delegated by the Board, for market and credit risk oversight. The Risk Policy also 

provided that the CRO reported to MF Global’s CEO and had direct access to the Board any time 

that circumstances would require such access. 

iii. Corzine Introduced a New Business Model 

40. At the time Defendant Corzine joined MF Global, at least several members of the 

Company’s Board had concluded that the Company needed to move in a new direction in order 

to earn revenues due to the prevailing low interest rate environment. 

41. Not long thereafter, the credit rating agencies told the Company that it needed to 

generate revenue growth every quarter or it would risk being downgraded, and Defendant 

Corzine represented in an earnings call that the Company would return to profitability in four to 

six quarters. 

42. Defendant Corzine identified the development and execution of principal trading 

— taking positions in various commodities, securities, and other instruments or products to 

either facilitate client trades or to attempt to earn revenues using the Company’s own funds 

through proprietary trading — as an important part of the Company’s future. In a May 2010 

earnings call, Defendant Corzine publicly acknowledged the need for improved and adequate 

controls to accommodate the principal trading: 

As we grow these activities we will be mindful of the necessity to 

enhance and reconfirm our operational and control functions and to 

secure the talent necessary to manage attended market risks. I 

want to be clear. I don’t anticipate increasing our current risk 

appetite in the near term but we will encourage facilitation desks to 

operate more aggressively within our existing limits. 

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43. In June 2010, Defendant Corzine established the Principal Strategies Group 

(“PSG”) as a trading unit within MFGI to engage in proprietary trading. The establishment of 

proprietary trading operations was one step in Defendant Corzine’s announced plan to diversify 

the Company’s revenue streams, and transition the Company to a B/D and, ultimately, to an 

investment bank. 

44. In an unusual role for a CEO, Corzine actively engaged in proprietary trading, and 

maintained his own trading book. As time went on, Corzine spent a considerable amount of time 

on the fixed income trading desk and trading in accounts under his control. 

45. At the December 15, 2010 Board meeting, representatives of the Boston 

Consulting Group (“BCG”), which had been retained to advise Defendant Corzine on the 

Company’s future business direction, endorsed his plan for MF Global to evolve from a broker to 

a B/D en route to becoming a full-service investment bank. However, the BCG consultants 

warned that, in order to implement that strategy, the Company needed to “[b]uild out robust risk 

management infrastructure, including platforms, tools, policies, and procedures for both market 

making and principalling,” “[s]hore up” operations and information technology for reliability and 

scalability, and provide greater management information systems and transparency in the 

Finance Department through tools and systems. 

46. To pursue Defendant Corzine’s strategy, MF Global hired traders and mortgage 

brokers, obtained primary dealer status, and considered acquiring a commodity pool business as 

well as certain partnerships. In the end, the Company made no acquisitions, with the exception 

of two small companies, while it created and dramatically expanded its proprietary trading 

operations. 

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47. The new proprietary traders hired by Defendant Corzine required large amounts 

of daily liquidity to fund their trading. Their activities ultimately had the effect of increasing 

stress on the Company’s liquidity. The increased scale of the Company’s operations under 

Corzine put additional pressure on the Company’s deficient controls without producing any 

significantly improved revenues. 

B. Defendants Failed to Improve MF Global’s Controls 

48. Shortly before the Company’s collapse, the Internal Audit Department found that 

there were 176 open action items previously presented to the Audit and Risk Committee of the 

Board that had not yet been resolved. The report forecasted that the inherent level of risk within 

the Company was increased by the likelihood that the Company’s business growth was 

“outpacing [the] growth of the related support functions.” 

49. As discussed below, Defendants knew about the Company’s liquidity and capital 

management risks, weak control environment, and the need to address these shortcomings in 

connection with the planned changes in the Company’s business. Nevertheless, Defendants did 

little to fix these problems while implementing the major initiatives of Defendant Corzine’s 

business plan. The deficient systems and controls surrounding the monitoring, tracking, and 

forecasting of liquidity and capital management contributed to the Company’s demise. 

i. Defendants Failed to Implement the Risk Policy’s Requirements 

50. The Company’s Risk Policy identified liquidity risk as the “[r]isk that the 

[Company], although solvent, either (1) does not have available sufficient liquid financial 

resources to enable it to meet its obligations as they fall due or (2) can secure sufficient liquid 

financial resources only at an excessive cost.” 

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51. The Risk Policy specifically called for a new position in the Risk Department, 

Global Head of Capital & Liquidity Risk, to take responsibility for 

independent and objective assessment of liquidity risk; reviewing 

liquidity scenario analyses conducted by [the] Treasury 

[Department], as well as risk scenarios conducted by other risk 

areas (i.e., operational risk, credit risk, market risk) that may lead 

to liquidity events; monitoring liquidity against limits outlined in 

the Risk [Delegations of Authority]; and presenting independent 

liquidity-risk information and intelligence through the CRO to 

senior management and the Board. 

However, the Defendants, in their capacities as officers of the Company, never caused the 

position of Global Head of Capital & Liquidity Risk to be filled. 

52. The Risk Policy also called for development of a Liquidity Risk Methodology 

Document that would include a contingency funding plan to assess potential liquidity 

requirements arising from adverse market or operational situations. However, the Defendants 

never addressed the Company’s failure to develop the Liquidity Risk Methodology Document or 

the contingency funding plan. 

53. Under the Risk Policy, the Company’s Treasurer had the responsibility to “ensure 

that effective liquidity forecasting and cash management processes are in place, documented and 

functioning across MF Global, including specific processes to identify any expected cash items 

that remain outstanding and appropriate action to cover any shortfall.” These processes were to 

include “a liquidity plan that assesses the [C]ompany’s liquidity requirements based on the 

planned volume and composition of business activity for the upcoming period,” and “a detailed 

analysis of projected sources and uses of funds for each MF Global entity.” The Treasurer, 

however, lacked the ability to complete the tasks assigned to him under the Risk Policy, as the 

Company did not have the means to conduct independent liquidity monitoring and forecasting, 

which were fundamental flaws and high priority risks for the Company. 

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ii. Defendants Knew of the Gaps in Procedures 

54. Defendants were aware of the Company’s failures to implement many important 

components of an appropriate system of liquidity and capital controls architecture, but did not 

adequately respond to the clear notice they received of these weaknesses. 

55. A May 2010 report issued by the Company’s Internal Audit Department 

addressed to Corzine and others concerning corporate governance found that MF Global’s risk 

limitation and monitoring policy lacked key limits significant to the operation of a B/D. An 

October 2010 Internal Audit report on Market and Credit Risk Management to Corzine, Abelow 

and others identified “High Risk” areas arising from the lack of controls over risk reporting, and 

alerted that market risk policies had not been updated to reflect MF Global’s then-current 

operating environment. 

56. The Risk Department prepared an analysis of gaps between the documented and 

approved Risk Policy and current practices which the Risk Department presented at the May 26, 

2010 meeting of the Audit and Risk Committee attended by Defendants Corzine and Steenkamp 

(the “Gap Analysis”). The Gap Analysis showed dozens of gaps between the Company’s 

written risk-control policies as described in the Risk Policy and the Company’s actual risk 

control practices, including the following weaknesses classified as “high” priority risks: 

a. The Company had not developed liquidity risk scenario analyses and stress 

tests; and 

b. The Treasurer lacked the appropriate personnel and technology to conduct 

independent liquidity monitoring and forecasting or economic capital risk 

analysis. The Gap Analysis stated that the Treasurer “[c]annot produce 

accurate forecasts because underlying data is inadequate.” 

57. The Gap Analysis also identified the following weaknesses, among others, as 

having a “moderate” priority level of risk: 

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a. The Company’s failure to hire someone to fill the important role of Global 

Head of Capital & Liquidity Risk; and 

b. The Company’s failure to develop the Liquidity Risk Methodology 

Document, which was supposed to document the Company’s contingency 

funding plan. 

58. In October 2010, a status update on the numerous gaps between the Company’s 

policies and practices identified almost a half year earlier (the “Gap Analysis Update”) showed 

that very few of the control gaps had been remedied and that the Risk Department considered 

some of the problems to have grown more serious. The Risk Department presented the Gap 

Analysis Update at a meeting of the Audit and Risk Committee attended by Defendants. Among 

other things, the Gap Analysis Update reported: 

a. Out of 32 gaps previously identified, only two had been resolved, and all but 

one of the high priority risk gaps persisted; 

b. Certain high priority risk areas, such as the need for liquidity risk scenario 

analyses, stress tests, and metrics to gauge return on risk-adjusted capital, 

remained “under development;” and 

c. The gaps in economic capital risk measurement, liquidity risk scenarios and 

operational risk profile had been elevated to “critical” priority status. 

iii. Defendants Knew of Deficiencies in Liquidity Controls and 

Procedures 

59. More than a year after the Risk Department alerted Defendants to control 

deficiencies in the Gap Analysis, in June 2011, the Internal Audit Department also alerted 

Defendants to limitations in the Company’s ability to track liquidity. According to the June 2011 

Global Liquidity and Capital Management Internal Audit Report (the “June 2011 Internal 

Audit Report”), “[e]xisting liquidity monitoring and forecasting is manual and limited. 

Reporting capabilities to evaluate liquidity needs for transactions that are booked but not yet 

settled have not been fully developed.” The report further found that “[e]xisting performance of 

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formal stress testing and scenario analysis is not adequate to fully assess liquidity and capital 

needs.” The June 2011 Internal Audit Report also warned that: 

The complexity of capital and liquidity demands have increased 

with the addition of principal trading across the [Company’s] 

customer facing desks, [PSG], and other previously approved new 

businesses. These additional stresses further emphasize the need 

for a more formal and consistent approach to liquidity and capital 

management. 

60. The June 2011 Internal Audit Report also identified a “key man” risk in 

connection with liquidity reporting, monitoring and forecasting tools, specifically noting that 

“[t]he lack of formal reporting, monitoring and forecasting creates an unnecessarily high reliance 

on key employees and increases the risk exposure should these staff members leave the 

[Company].” The Internal Audit Department’s concern was based on the Company’s reliance on 

the expertise and experience of a single employee in the Treasury Department, the Assistant 

Treasurer Edith O’Brien (“O’Brien”). 

61. The June 2011 Internal Audit Report designated Defendants Steenkamp, Abelow 

and other officers reporting to them as responsible for resolving the identified issues, many of 

which they never resolved. 

62. Defendants were aware that the Company lacked a formalized process for 

approving new business initiatives, including determining the availability of funding for such 

initiatives. Defendants also were aware that the Company needed a method of managing and 

responding to capital requests from the individual trading desks. As of October 2011, the month 

of the Company’s collapse, Defendants had not established such a method or process, and 

requests continued to be handled informally. 

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iv. Defendants Knew of Treasury Department Deficiencies, including the Use of 

Ad Hoc Liquidity Monitoring Tools 

63. As Defendant Corzine orchestrated the expansion of MF Global’s proprietary 

trading, the Company also failed to integrate or upgrade its various technology systems and 

platforms for monitoring treasury operations, liquidity risk, and financial regulatory functions. 

According to a Finance Department officer, the Treasury Department’s systems were a 

“hodgepodge of systems and processes without a design.” The Treasury Department’s systems 

for managing funding and cash flows produced inaccurate books and records, and the Finance 

Department often had to make manual corrections in order to ensure that the Company’s books 

and records were accurate. 

64. In November 2010, the CFO of MFGI, Christine Serwinski (“Serwinski”) 

reported to Defendant Steenkamp her concerns about the shortcomings in the Treasury 

Department’s systems (“November 2010 Report”). Serwinski reported problems with FinCo 

Treasury’s back office bookkeeping system, which recorded intercompany lending and client 

margin financing transactions. These reported problems included an increase in the number and 

dollar amount of bank reconciling items since July 2010, resulting in increased manual journal 

entries and accounting adjustments, delays in the close process, and incorrect posting of items. 

In the November 2010 Report, Serwinski stated that attempts to address these items and other 

issues around the accurate and timely reporting of the FinCo balances have been “to no avail,” 

and that “[a]t this point, confidence in the ability to accurately and timely report balances is 

declining.” 

65. In the November 2010 Report, Serwinski also informed Steenkamp of the 

circumstances of an October 2010 $25 million wire from MFGI’s house account to MF Global 

Holdings Hong Kong Ltd., which resulted in MFGI overstating its excess net capital, and 

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crossing the internal global capital thresholds. Despite several email exchanges and discussions, 

the Finance Department was not able to confirm the exact nature of the transaction. 

66. Defendant Corzine was also aware that the Treasury Department lacked the 

necessary systems and technology to conduct accurate liquidity monitoring and forecasting 

across its global operations as early as May 2010, when the Gap Analysis was delivered to the 

Board. Company management, however, did not begin to discuss hiring a vendor to develop an 

integrated global treasury system until July 2011, and did not schedule its vendor selection and 

implementation phase until February 2012. 

67. In the absence of an automated global treasury system, Treasury Department 

officials manually tracked the movement of money among the Company’s legal entities. They 

determined and reported the B/D’s liquidity through an ad hoc daily snapshot, which included 

the sources and uses of that liquidity. A Treasury Department official started compiling this 

snapshot, known as the “liquidity dashboard,” towards the end of 2010 at Defendant Corzine’s 

request. The liquidity dashboard was distributed daily to senior management, including 

Defendants, and provided a very simplistic and, as Defendants knew, sometimes inaccurate view 

of the cash available to the B/D. For example, the liquidity dashboard treated different types of 

capital similarly, without explaining that certain types of capital (working capital as opposed to 

regulatory capital) are less available for certain business uses than other types, potentially 

resulting in a misleading report. In addition, the liquidity dashboard considered certain funds 

held by the FCM to be an available source of liquidity, even though there are strict rules about 

what the FCM could do with these funds. Therefore, these funds might not be available to the 

B/D. 

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68. Senior officers, including Defendant Corzine, relied upon the liquidity dashboard 

as the only source of “real time” information about the Company’s liquidity, even though they 

knew that the figures in it were estimates and not always timely or accurate. Indeed, as 

discussed above, the June 2011 Internal Audit Report criticized the Company’s reliance on “ad 

hoc tools” and the professional expertise of key personnel to manage liquidity. 

69. Apart from the limitations of the liquidity dashboard, MF Global had continuing 

problems monitoring, gathering, and internally reporting accurate financial data. For example, 

the Finance Department could not produce a high-level overview of cash flows for a defined 

period because the Finance Department did not have the systems needed to generate such a 

report. 

70. As discussed below, MFGI’s B/D began to rely on funding from MFGI’s FCM to 

finance its business. However, intraday transfers between the FCM and the B/D were recorded 

through nothing more formal than email communications and manual data entry systems. 

71. The Treasury Department also lacked a tool to monitor the Company’s leverage 

more frequently than at the end of each quarter despite the fact that leverage was one of the 

measures on which the credit ratings agencies and analysts focused in assessing the Company’s 

performance. 

72. These problems were exacerbated in the weeks preceding the Company’s 

collapse, when the Company was unable to properly record and track the financial data that 

might have helped avoid the ultimate customer fund shortfall. 

v. Defendants Knew that the Company’s Regulatory Reporting Controls were 

Inadequate 

73. The Financial Regulatory Group, a division within the Finance Department, was 

responsible for ensuring that MFGI complied with all of the regulatory requirements applicable 

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to a B/D and an FCM. In preparing the required regulatory reports for the Company, the 

Financial Regulatory Group relied heavily on end-user computing tools (“EUCs”), including 

Excel spreadsheets and databases, to perform many of their reporting and reconciliation duties. 

74. In May 2011, the Internal Audit Department alerted Defendants that the 

Regulatory Reporting team lacked controls over the ability to modify and access key EUCs. The 

Internal Audit Department reported that without adequate controls, EUCs “may not maintain the 

integrity of the data and therefore there is an increased chance that decisions may be made on 

inaccurate information or that monitoring reports may be incomplete.” Defendants never fixed 

the manual cash processing issues that confronted the Finance Department. 

75. The May 2011 Internal Audit report also put Defendants on notice of serious 

control deficiencies in the preparation of the regulatory reports, specifically with regard to the 

process of gathering information. 

76. All the Defendants received the May 2011 Internal Audit report, which 

designated Defendant Steenkamp as the person responsible for all the issues identified. Despite 

their awareness of these issues, Defendants never took the necessary steps to remedy the 

situation before the Company’s collapse in October 2011. 

vi. Defendants Knew that the Company’s Back Office Systems Were Flawed 

77. MF Global used a variety of back office systems, rather than one global system 

for the clearing and settlement of trades. The Company’s various back office operations 

platforms were antiquated and showed only limited position and account information, thereby 

impeding the effective monitoring and forecasting of Company liquidity. A July 2011 Internal 

Audit report faulted one of the systems for a “[l]ack of appropriate controls relating to the highly 

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manual processes associated with [mortgage-backed securities/to-be-announced mortgagebacked securities (“TBA”)] trade matching, allocations and settlement of open TBAs.” 

78. Fail reports generated by the systems, which indicated trades reaching the 

settlement date, but which had not yet settled, were defective in that they: (1) showed false 

positives in the system (they reported trades that had not reached their settlement date); and (2) 

did not provide adequate descriptions of the reasons trades failed. 

79. These system deficiencies required operations personnel to engage in a manual 

process of generating the records necessary to clear and settle transactions, such as through 

exchanging a continuous stream of emails. The manual nature of this process made clearing and 

settlement significantly more difficult during October 2011 when literally hundreds of 

transactions had to be handled through this process. 

80. As the Company struggled to meet its financial obligations in the wake of ratings 

downgrades in October 2011, the limited systems used by back office staff exacerbated these 

problems. No plan to fix or replace the Company’s back office systems with a single adequate 

system was implemented by October 2011. 

C. Defendants’ Strategy Exposed the Company to Excessive Risks 

i. Corzine Used the Euro RTM Strategy as a Revenue-Generating Bridge 

81. Not long after he arrived at the Company, Defendant Corzine met with MF 

Global’s senior traders to discuss ways to improve the Company’s profitability, address 

pressures from the credit rating agencies to generate revenues, and fund the new trading desks 

and product groups Corzine believed to be necessary to develop the Company into an investment 

bank. 

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82. As a result of these discussions, Defendant Corzine decided that the Company 

would trade in the sovereign debt of European countries by using RTMs to purchase European 

sovereign debt. 

83. Defendant Corzine portrayed the European sovereign investments as a way to 

“bridge” the Company’s revenues while MF Global was transitioning from a broker making 

money on interest rates and commissions to a B/D and investment bank that generated revenue 

through other means. 

84. The Euro RTM strategy was Defendant Corzine’s idea and a prime focus of his 

attention. Corzine caused MFGI to enter into the Euro RTM trades. On a regular basis, Corzine 

received information on potential profit opportunities for certain country positions from the fixed 

income traders at MF Global’s United Kingdom affiliate, MF Global UK (“MFG UK”). 

Corzine then communicated directly with one of the Company’s proprietary traders or the MFG 

UK fixed income trading desk regarding the Euro RTM trades and instructed them when to enter 

and exit various positions. Other than this limited involvement by the fixed income traders and 

the proprietary trader, Corzine was the sole person involved with the Euro RTM trading. 

85. Although a “repo” typically is accounted for on a balance sheet as a collateralized 

financing and increases balance sheet leverage, a repo-to-maturity is accounted for as a sale. In 

accordance with the treatment of sales mandated by Generally Accepted Accounting Principles 

(“GAAP”), the European sovereign securities were removed, or “derecognized,” from the 

Company’s balance sheet, and the gain on the Euro RTMs was recognized as of the date the 

transaction was entered into, leading to the recognition of revenues at the outset of the 

transaction. The Company’s revenues on these transactions consisted of the difference between 

the price of the securities and the cost of financing their purchase. 

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86. An analysis of the Company’s income (and losses) over the relevant time period 

indicates that Defendants relied heavily on the Euro RTM income to report improved earnings. 

For example, for the quarter ending March 31, 2011, the Euro RTM income allowed the 

Company to cut its net loss from approximately $92 million to approximately $46 million. For 

the quarter ending December 31, 2010, the Euro RTM income allowed the Company to cut its 

net loss from approximately $29 million to approximately $5 million. For the quarter ending 

September 30, 2010, the Euro RTM income cut the Company’s net loss from approximately $54 

million to approximately $39 million. For the quarter ending June 30, 2011, the Euro RTM 

income allowed the Company to report net income of $13 million, instead of a net loss of more 

than $23 million. 

87. Defendants’ strategy of meeting earnings targets by relying on the Euro RTM 

revenues was inherently unsustainable over the long term because each new revenue-producing 

position required the posting of initial margin, which tied up liquidity for the duration of the 

investment and introduced the possibility of future margin calls (variation margin, and 

potentially more initial margin). 

88. During several fiscal quarters between 2010 and 2011, Defendant Corzine placed 

Euro RTM trades at or near the end of the quarter in order to generate revenue for that quarter 

and prop up the Company’s apparent financial health. For example, in the last four days of the 

quarter ending March 31, 2011, the Company placed Euro RTM trades worth approximately 

€1.85 billion, or approximately $2.62 billion. Of that amount, on March 31, 2011 alone, the 

Company placed several large Euro RTM trades worth approximately €725 million, or 

approximately $1.03 billion. 

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89. At the time MFGI began acquiring the European sovereign debt positions through 

its agent MFG UK, each of the sovereign debt issuances was rated as investment grade. 

Accordingly, MFGI was required to post only a small initial margin payment for these trades — 

as low as five percent of the face amount of the securities to be financed — which allowed the 

Company to build a highly leveraged portfolio with little up-front cost. 

90. Once it entered the Euro RTM positions, MFGI faced the risk that the 

clearinghouses or counterparties that financed the purchase of the Euro RTMs would demand 

additional margin. Additional margin could be demanded in numerous situations: (1) increased 

initial margin could be required by the clearinghouses if they determined that the Company had 

become less creditworthy; (2) increased initial margin could also be required by the 

clearinghouses if the clearinghouses determined that the risk inherent in the underlying security 

had increased; and (3) variation margin could be required based on the decline in market value of 

the underlying security. To meet these increased funding needs, MFGI turned to FinCo for cash. 

Accordingly, financing the acquisition of securities through the use of repos had the potential to 

create a significant liquidity risk for MFGI and the Company as a whole. 

91. Because MF Global was at risk of a downgrade at the time it entered the Euro 

RTMs, the margins associated with these investments had the potential to reach extraordinary 

levels. The rules of the Company’s frequent clearinghouse for the Euro RTM transactions, 

LCH.Clearnet (“LCH”), provided that initial margin would be increased in connection with 

changes to a company’s credit rating according to a formula: the initial margin would be 

multiplied by 110% for a company downgraded to an average rating of below BBB-, and 200% 

for those downgraded to BB+. Any downgrade below BB+ could lead to the clearinghouse 

requiring the company to exit the clearinghouse and terminate its open accounts. 

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92. The capital used to finance the margin on Euro RTM positions was essentially 

trapped, because MFGI could not unwind these trades before maturity without sustaining an 

unfavorable GAAP earnings treatment. 

93. For its short-term liquidity needs, MF Global relied on two separate revolving 

credit facilities: (1) a $1.2 billion unsecured committed revolving credit facility (“RCF”) for 

which Holdings Ltd. and FinCo were the borrowers; and (2) a $300 million secured committed 

RCF for which MFGI was the borrower. However, the RCFs were intended to serve only as 

backstops for extraordinary situations, “a liquidity pool and not a component of [the Company’s] 

long-term capital structure,” as Defendant Corzine stated in a February 3, 2011 earnings 

conference call. They were not intended to serve as a permanent source of liquidity. 

ii. Corzine Rapidly Accelerated His Euro RTM Strategy 

94. Between September 2010 and June 2011, Defendant Corzine made frequent 

requests to the Board to increase the “risk limits,” that is, the maximum size of the position that 

the Company could take in European sovereign positions, including Euro RTMs. Thus, Corzine 

rapidly escalated the size of the Company’s positions and frequently brushed up against — and 

occasionally exceeded — those limits. 

95. All three Defendants attended most Board meetings discussed herein, and were 

fully aware of all liquidity stress projections and Treasury and Finance Department liquidity 

updates provided to the Board during this period of time. 

96. Defendant Corzine first began trading in European sovereign debt through RTM 

transactions in September 2010, the first time the Company had ever done so. By the late 

summer or early fall of 2011, the Euro RTM portfolio had grown to a gross figure of $11.7 

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billion, with approximately $3.5 billion in hedges, thus accounting for a net position of $8.2 

billion. 

97. As the Company’s European sovereign positions and limits, which were less than 

$500 million in March 2010, approached $1.5 to $2 billion in mid-September 2010, Roseman, 

the Company’s CRO, recommended to Corzine that the level of such trading be brought before 

the Board due to his concerns about the liquidity and capital risks associated with these positions. 

Roseman met with Corzine to express his concerns, and they both agreed to consult the Board. 

98. The Board first approved an increase in the European sovereign risk limit (which 

included Euro RTM positions) to $4.5 billion at its September 22, 2010 Executive Committee 

meeting. 

99. Less than two months after this risk limit increase, on November 8, 2010, 

Defendant Corzine requested and received from the Executive Committee an additional increase 

in the European sovereign risk limit to $4.75 billion. In addition to approving the increase, the 

Executive Committee restricted additional new purchases of Irish and Portuguese debt to €200 

million (these particular limits were set in euro currency at that time) without further approval of 

the Board. 

100. The Euro RTM investments began to generate liquidity demands shortly after the 

Company commenced the trading strategy. In November 2010, the LCH raised the initial 

margins required on Irish bonds three times from 7% to 15%, then to 30%, and then to 45%, 

which required the Company to provide additional margin. Around this time, and based partly 

on the LCH’s decision, Roseman estimated potential margin calls associated with the Euro RTM 

investments of $524 million. 

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101. The liquidity demands and risks of the Euro RTM portfolio were exacerbated 

when Defendant Corzine lengthened the maturities of the investments. The maturities of the 

positions that Corzine put on at the beginning of the Euro RTM investments in September 2010 

did not exceed twelve months, but, beginning in December 2010, the maturities lengthened up to 

twenty-one months, at the same time that the amount of these transactions increased. Thus, the 

Euro RTMs steadily increased the amount of liquidity tied up, and the amount of time liquidity 

was tied up. 

102. The Defendants assured the Board that the Company had sufficient liquidity, 

including its RCFs and other credit lines, to manage even the worst-case scenario. At one Board 

meeting, Defendant Corzine disagreed with Roseman’s risk scenarios, claiming that the Risk 

Department’s worst-case liquidity stress scenario was not realistic. 

103. In November 2010, Defendant Corzine informed Roseman that he would no 

longer report directly to him, but would report instead to Defendant Abelow, the Company’s 

COO. Roseman disagreed with the change in the reporting line, viewing it as disempowering the 

CRO and demoting both the position and the Risk Department as a whole. Roseman expressed 

his objections to this reporting change to Corzine. 

104. At the end of January 2011, Roseman was notified that he was being replaced by 

a new CRO, Stockman, effective immediately. When Stockman became the Company’s CRO, 

he also reported directly to the COO, Defendant Abelow. 

105. At the January 27, 2011 meeting of the Audit and Risk Committee, the Board and 

Defendant Corzine agreed that no additional Euro RTM transactions would be placed unless 

Corzine sought the Board’s approval on additional positions. This action reflected increased 

concerns among the Board members about the Company’s Euro RTM exposure. 

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106. Very soon after he joined the Company, Stockman was asked by Defendants 

Corzine and Abelow to prepare a request for consideration at the Board’s March 2, 2011 meeting 

to increase the European sovereign risk limit from $4.75 billion to $5 billion and to request a 

temporary increase to $5.8 billion until March 31, 2011. Stockman supported the overall risk 

limit increases proposed at the March 2, 2011 Board meeting. Stockman’s liquidity scenarios 

projected potential margin calls of between approximately $297 and $761 million, while the total 

margin funding posted for the portfolio at the time was approximately $105 million. Stockman 

also concluded that an approximate 15% increase to projected margin needs outlined under two 

risk scenarios developed by the Risk Department at this time had to be applied to account for the 

temporary growth of the portfolio to $5.8 billion until March 31, 2011. Based on the assurances 

he received from the Finance and Treasury Departments, Stockman believed that the Company 

had sufficient liquidity to cover those scenarios. 

107. The Board approved the requested permanent and temporary risk limit increases, 

but directed that management seek advance approval from the Board or the Executive 

Committee if it wanted to exceed the new limits set or significantly add to the positions beyond 

the scheduled maturity dates of existing positions. 

108. Only three weeks after the March 2, 2011 Board meeting, during a March 23, 

2011 meeting of the Executive Committee, Defendant Corzine again sought to expand the risk 

limits, requesting an extension of the temporary increase in the overall limit of $5.8 billion 

through September 30, 2011. On March 18, 2011, Stockman expressed to Abelow his 

discomfort at the frequency of Corzine’s risk limit increase requests. 

109. The Executive Committee approved Defendant Corzine’s request to extend the 

temporary $5.8 billion limit until September 2011, at which time the limit was scheduled to 

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revert to $5 billion, provided that the maturities of the positions did not extend beyond December 

2012. The Executive Committee also approved an increase in the Italian sovereign limit — 

within the overall Euro sovereign limit — from $1.8 to $3.1 billion; at the March 2 Board 

meeting, the Italian limit already had been increased from $1.5 to $1.8 billion. In March 2011, 

Corzine placed $2.94 billion in Italian sovereign RTM trades. 

110. On March 31, 2011, only eight days after the March 23 Executive Committee 

meeting, Defendant Corzine again sought the Board’s approval to increase the Belgian limit from 

$500 million to $1 billion. This request was above and beyond the $5.8 billion limit only 

recently established for Ireland, Portugal, Spain, and Italy. 

iii. The Euro RTM Strategy Created Increasing Liquidity Demands 

111. Stockman highlighted the potential increases in margin demands resulting from 

the Euro RTM strategy during his presentation at the May 11, 2011 Board meeting. Stockman 

indicated a total margin funding need between March 1 and May 5, 2011 of $167 million — up 

from $105 million — and noted that the LCH had increased the initial margin, or “haircut,” for 

Portugal to 45%, or $500 million. MF Global only was able to avoid posting this increased 

margin by transferring the positions to another clearinghouse, Eurex. 

112. Starting at the end of May 2011, Defendant Corzine caused the Company to enter 

into short Euro RTM positions (called “reverse repos-to-maturity,” or “RRTMs”) in order to 

reduce the Company’s net Euro RTM positions and the margin demands on these positions. 

Corzine also took gross long positions in excess of the net risk limits set by the Board. These 

gross long Euro RTM positions ultimately reached $12.5 billion in or about the end of July 2011. 

113. Defendant Corzine called an off-cycle telephonic meeting of the Board for June 6, 

2011, to request yet another increase in the European sovereign risk limit. At the June 6 Board 

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meeting, Corzine recommended that the Euro RTM portfolio be remodeled into three tiers: Tier 

1 encompassed Belgium, Spain, and Italy, the countries with higher credit ratings; Tier 2 

encompassed Ireland and Portugal; and Tier 3 encompassed Greece. Corzine also requested an 

overall $1 billion risk limit increase, made up of a $700 million increase for Tier 1 and a $300 

million increase for Tier 2. 

114. While the Board approved an increase in the Tier 1 limit of $1 billion, $300 

million more than the $700 million requested by Defendant Corzine, the Board approved an 

increase of only $200 million for the less favorable investments in Tier 2, $100 million less than 

the $300 million requested by Corzine. The Board did not approve Corzine’s requested limit 

increase for Portugal. The overall limit was thus increased to $8.5 billion. The Board also set a 

maturity limit for Tier 1 countries of December 31, 2012, and a maturity limit for Portugal and 

Ireland investments of June 30, 2012. 

115. At the time of the June 6, 2011 Board meeting, the initial and variation margin 

requirements for the Company’s Euro RTM positions amounted to approximately $200 million, 

with an anticipated additional $50 million required for positions added after the limit increases. 

Under the Risk Department’s risk scenarios, potential funding requirements increased 

substantially as a result of the proposed limits, to as high as $1 billion. 

116. During the June 6 Board meeting, all Defendants addressed questions from the 

Board about the proposed European sovereign risk limit increases. Defendant Steenkamp 

indicated that the Company would have the ability to finance even the most severe stress 

scenario presented by the Risk Department. A little more than four months later, after the 

portfolio continued to increase in size, the Company was no longer able to satisfy the liquidity 

needs presented by the stress scenarios. 

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117. On or about June 6, 2011, Defendants also were aware that the Company’s long 

positions had a much longer duration than the offsetting short positions, the RRTMs. This 

presented the risk of increased margin demands and pressure on the Company’s liquidity 

because, when the short hedges matured, they would no longer offset the margin demands on the 

long positions. In a June 6, 2011 email, Defendant Steenkamp explained to Defendants Corzine 

and Abelow, among others, the impact on these hedges of a downgrade in the Company’s rating 

to below investment grade: 

[T]here could be an impact on the reverse RTM netting trades as 

these are to different maturities than the original RTMs. The 

potential issue is whether some counterparties will choose not to 

roll over transactions or the trading counterpart can’t trade with us 

due to our rating. If this were to happen, then [MFGI] could lose 

its netting benefit on these reverses and thus be subject to higher 

margins, thereby increasing liquidity needs for the [B/D]. 

118. In the same email, Defendant Steenkamp also stated that if the Company was 

unable to roll netting trades for certain Irish and Portuguese positions, then the Company might 

need an additional $313 million in liquidity, which could require a drawdown on the Company’s 

RCFs. 

119. In the summer and fall of 2011, the value of MF Global’s Euro RTM positions 

deteriorated when the European sovereigns were downgraded. As a result, the Company 

received several large margin calls requiring the Company to post additional variation margin. 

These margin calls included the following: 

a. On July 14, 2011, a $150 million margin call on Portuguese positions; 

b. On September 6, 2011, a $33 million margin call on Italian positions; 

c. On September 13, 2011, a $28 million call on Italian positions; and 

d. On September 20, 2011, a $20 million margin call on Italian and Portuguese 

positions. 

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120. Between September 29 and October 3, 2011, Societe Generale, a European bank, 

stopped providing financing for the Company’s Euro RTM portfolio. To cover a $440 million 

financing shortfall, the Company drew on the unsecured RCF. 

121. In late October 2011, the clearinghouses on the opposite side of MF Global’s 

Euro RTM trades required even more margin after the Company’s credit rating was downgraded. 

122. Overall, margin requirements increased dramatically between March and August 

2011. 

a. On March 2, 2011, the total funding requirement for the Euro RTM portfolio 

was approximately $105 million; 

b. By May 5, 2011, the funding requirement jumped to $167 million; 

c. Only one month later, by June 6, 2011, the funding need increased to $200 

million with an anticipated additional $50 million associated with the 

increase in risk limits sought by Corzine from the Board of Directors; 

d. By July 17, 2011, the funding requirement for the Euro RTM portfolio 

reached $450 million; 

e. On July 20, 2011, the funding requirement was $480 million; 

 

f. By July 29, 2011, the funding requirement reached $592 million; and 

g. At the August 11, 2011 meeting of the Board of Directors, Stockman 

reported a $500 million funding requirement, a more than a threefold 

increase since May 5, 2011, and almost a fivefold increase since March 2, 

2011. 

123. In the same time period between March and August 2011, analyses conducted by 

the Risk Department indicated similarly escalating potential margin exposure under various 

stress scenarios. For instance: 

a. On March 2, 2011, Stockman projected potential margin calls between $297 

and $761 million, with 15% additional margin projections for the temporary 

increase of the portfolio to $5.8 billion; 

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b. By May 5, 2011, the projected margin demands associated with one of the 

two stress scenarios developed by the Risk Department had increased by $34 

million; 

 

c. By June 6, 2011, potential funding needs had grown from $331 million to 

$500 million, and from $664 million to $1 billion under the two stress 

scenarios; 

d. By July 13, 2011, Risk Department scenarios showed potential funding 

requirements for the Euro RTM positions of between $988 million and $1.6 

billion, exceeding, for the first time, the limits of the Company’s unsecured 

RCF; 

 

e. By July 21, 2011, the projected margin funding requirements under the 

various stress scenarios developed by the Risk Department were between 

$1.1 billion and $1.8 billion, a substantial increase from the previous week, 

exceeding the combined limits of both of the Company’s RCFs; 

f. On August 11, 2011, potential funding exposure on the portfolio ranged 

between $746 million and $1.43 billion under two of the Risk Department’s 

stress scenarios; and 

g. Between May 5 and August 8, 2011, potential funding needs associated with 

the Euro RTM portfolio had doubled under the two stress scenarios from 

$331 million to $746 million, and from $665 million to $1.43 billion, 

respectively. 

124. Through the Euro RTM investments, Defendant Corzine exceeded the Boardapproved limits for European sovereign investments on a number of occasions, including the 

following: 

a. On October 1, 2010, the Company breached the Irish and Spanish limits. The 

Irish breach amounted to $79 million, or 16% of the country limit. This was 

shortly after the Executive Committee approved limit increases at the 

September 22, 2010 meeting; 

b. At the end of November 2010, the Company breached the Italian limit by $50 

million; 

c. On March 31, 2011, the Company breached the overall European portfolio 

limit by $184 million; and 

d. In April and May of 2011, the Company breached the Italian limit by about 

$400 million, and the Spanish limit by approximately $200 million. 

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125. Defendant Corzine also exceeded the gross risk limits — the combination of long 

and short positions — set by the Risk Department. For instance, on February 3, 2011, the 

Company breached the Spanish gross limit of $1.75 billion by approximately 10%. 

iv. Defendants Disregarded the CRO’s Recommendations and Warnings 

Concerning the Euro RTM Strategy 

126. As the European credit market further deteriorated over the summer of 2011, 

Stockman began to believe that it would be prudent for the Company to mitigate the increased 

risks associated with its European sovereign debt trading position, and to consider entering into 

hedging transactions to reduce the Company’s exposure. Stockman convened two meetings, on 

July 13 and 21, 2011, with Defendants Corzine, Abelow (who attended only the second of those 

meetings), and Steenkamp, and other Company managers, to discuss the risks and exposures of 

the Euro RTMs, stress scenarios, and the possibility of hedging the positions. 

127. During those meetings, Stockman highlighted a number of risks associated with 

the Euro RTM positions, including the risk of being unable to extend or replace maturing short 

positions in Italian or Spanish bonds, the need to rectify breaches of the risk limits, and the need 

to engage in additional hedging and risk-reducing strategies. 

128. At those meetings, Defendant Corzine challenged Stockman’s analysis, and 

declared the Risk Department’s scenarios unrealistic because they did not take into account 

mitigating actions that might be taken, such as unwinding the positions in response to increasing 

margin requirements (which likely would have resulted in a loss). 

129. At the time of the July 13, 2011 meeting, stress scenarios created by the Risk 

Department showed potential funding requirements for the Euro RTM positions of between $988 

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million and $1.6 billion. These potential funding requirements had increased from between $542 

million and $1.1 billion under prior Risk Department stress scenarios. 

130. Following the July 13, 2011 meeting, Stockman recommended longer-dated 

hedging of the Italian and Spanish bonds and a reduction in the Company’s approximately $3 

billion concentration in Italian bonds set to mature on December 31, 2012. Stockman also 

reiterated that margin calls remained the main risk associated with these positions. 

131. In a July 17, 2011 email to all three Defendants, Stockman recommended that the 

trading desk and the Treasury and Finance Departments develop contingency plans in the event 

of significantly increased margins on the Euro RTM positions. Stockman also stated in the email 

that the funding requirement for the portfolio as of the July 13 meeting had been $450 million. 

Contrary to the CRO’s advice, Defendants failed to engage in relevant contingency planning 

until it was too late. 

132. During the July 21, 2011 meeting, the second called by Stockman, he reported 

Euro RTM funding requirements of $480 million, a $30 million increase in a span of eight days. 

Stockman also revised his assessment of the projected margin funding requirements under the 

various stress scenarios to between $1.1 billion and $1.8 billion, a substantial increase from his 

assessment of eight days earlier. Stockman warned that MFGI might be unable to replace 

RRTMs that were maturing and that, if MFGI no longer had the RRTM positions, it faced the 

risk of initial margins increasing from $248 million on each maturity date to a peak of $860 

million on September 28, 2011. 

133. Despite Stockman’s warnings throughout the summer of 2011, and despite 

Defendants’ acute awareness of the increased liquidity risks posed by the Euro RTM strategy, 

Defendants failed to reduce the Company’s exposure through hedging or otherwise. 

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134. Instead of reducing the Company’s risks in the face of these warnings, Defendants 

further increased the Company’s exposure. On July 29, 2011, after the two meetings with 

Stockman, and after Stockman again told Defendant Corzine about the need to increase hedging, 

the Company purchased an additional $200 million of Italian bonds, a position which the 

Company did not hedge. 

135. The following day, July 30, 2011, Stockman sent an email to Defendant Corzine, 

copying Defendant Abelow, stating that he had noticed the additional $200 million Italian bond 

purchase and that he was “not currently supportive of buying more sovereigns.” At the time, the 

Risk Department’s updated stress scenarios showed incremental liquidity needs for these 

positions of $250 million and $1 billion, in addition to the already posted margin of $600 

million. 

136. Stockman recommended to Defendants Corzine and Abelow that the Company 

stop buying more Euro RTMs until it could assess how to proactively manage initial margins. 

Stockman continued to advocate setting long-dated hedges to reduce sovereign and funding risk. 

137. On August 3, 2011, Defendant Abelow requested information from the Risk 

Department about one of the liquidity stress scenarios for the Euro RTM portfolio. In response, 

Stockman told Defendant Abelow that the Company now projected a $1.6 billion potential 

funding requirement, $1 billion more than previously projected under one of the stress scenarios. 

Stockman said that, if the Company could not find counterparties for its RRTM margin netting 

transactions for Italian and Spanish bonds, the Company could be required to provide an 

additional $250 million, for a total funding need closer to $2 billion. 

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v. The Board Halted Further Euro RTM Trading 

138. At an August 11 Board meeting, the Board halted further growth of the Euro 

RTM portfolio, and expressly prohibited Defendant Corzine from using previously-approved but 

unutilized risk limits. At that meeting, attended by Defendants, management again claimed that 

the Company had a strong liquidity position and sufficient liquidity through its RCF and other 

sources to manage even the most severe liquidity stress scenarios presented by Stockman. 

139. As of the August 11, 2011 Board meeting, the Risk Department’s stress scenarios 

forecasted a potential $1.43 billion funding requirement. This amount was in excess of the total 

liquidity available under the Company’s secured and unsecured RCFs. Moreover, as of that date, 

the total funding need under the stress scenarios had more than doubled from scenarios presented 

in May 2011. 

140. At all times between December 2010 and October 2011, while the Company’s 

European sovereign risk limits were increased, Defendant Abelow was the direct supervisor of 

the CRO and was substantively involved in European sovereign risk limit discussions. Stockman 

kept Defendant Abelow informed about various market developments, Board member inquiries 

and interactions, liquidity risk scenarios, and interactions with Defendant Corzine regarding the 

Euro RTM strategy. Also, as the Risk Department developed stress scenarios for the Euro RTM 

portfolio, Defendant Abelow regularly met with Stockman to discuss the stress scenarios. 

Defendant Abelow also was aware of Stockman’s hedging advice in or about July 2011. 

141. According to the Company’s own analysis, as of September 30, 2011, the 

Company’s Euro RTM holdings constituted 460% of the Company’s equity and 13.9% of its 

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quarter-end assets, levels that were greatly disproportionate to the levels of other larger and 

better-capitalized institutions. 

D. Other Actions by Defendants That Caused the Company’s Collapse 

i. The HTM Portfolio and “Box” Securities Challenged the Company’s Ability 

to Properly Manage Its Liquidity 

142. Before its collapse in October 2011, the Company was deluged by increasing 

margin demands resulting from the Company’s Euro RTM positions and additional capital 

charges required of MFGI by regulatory agencies. The Company’s ability to safely manage its 

liquidity was further threatened by the addition of new trading desks that dealt in securities that 

were difficult to finance, and increased risk-taking in its hold-to-maturity (“HTM”) portfolio. 

143. The level of securities held that could not be financed, referred to as securities 

held in “the box,” dramatically increased in the three months preceding the Company’s collapse 

in October 2011. Defendants Steenkamp and Corzine held frequent discussions with other 

members of management regarding the box securities. During these discussions, Defendant 

Corzine focused on optimizing liquidity, that is, trying to find ways to maintain the positions, 

rather than reducing the Company’s positions in these securities because of the growing pressure 

the box securities were putting on the Company’s liquidity. 

144. Defendant Corzine also caused the Company to increase its risk-taking by 

investing in certain corporate securities in the HTM portfolio, which held the potential to provide 

a better rate of return while also increasing the funding risk for the HTM portfolio. When the 

corporate securities in the HTM portfolio were downgraded and became ineligible for investment 

of customer funds, the Company needed to find adequate funding for these securities through 

third parties. 

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145. The size of the HTM portfolio also increased during the period just before the 

Company’s collapse in October 2011, from about $6 billion in assets at the beginning of June 

2011, to about $8.6 billion by October 3, 2011. This increase in the HTM portfolio’s size also 

contributed to the Company’s liquidity challenges, since MF Global primarily funded the HTM 

portfolio holdings through repos, which required additional margin to finance them, and 

additional liquidity to fund the unfinanced portion. 

ii. Defendants Failed to Respond to the Company’s Liquidity Challenges Long 

Before Its Collapse in October 2011 

a. Defendants Received Regular Reports Showing Liquidity Stresses 

146. Defendants were on notice and knew of the many risks, especially to liquidity, 

inherent in the Company’s business and investment strategy, and were aware of the gaps and 

inadequacies in the Company’s control environment. Nevertheless, Defendants did little or 

nothing to strengthen the Company’s controls or ability to mitigate these risks. 

147. On a daily basis in 2011, Defendants were informed about the Company’s 

liquidity stresses through the liquidity dashboard and frequent discussions. The dashboard 

reflected, albeit inaccurately, the size of the unfunded box, the Euro RTM-related margin calls, 

the impact of proprietary positions on liquidity, other uses of liquidity, and the extent of the draw 

on the Company’s RCF to alleviate liquidity pressures. 

148. Defendants Corzine and Steenkamp were on notice of the pressure that the 

increased proprietary trading was placing on the Company’s capital resources. They received 

Capital Risk Incident Escalation Reports, which indicated decreasing levels of surplus capital, 

almost daily in July and August 2011. Those reports informed Defendants Corzine and 

Steenkamp that the fixed income, equity, PSG, and asset-backed securities and mortgage-backed 

securities desks were extensive users of the Company’s capital, and sometimes dramatically 

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exceeded their assigned capital limits. For instance, on August 25, 2011, a Capital Risk Incident 

Escalation Report indicated that the Fixed Income proprietary trading desk was using $214.2 

million of capital against a $75 million limit, while the equity proprietary trading desk was using 

$27 million in capital against a $10 million limit. 

149. Defendants failed to implement a system to monitor capital limit utilization or 

breaches in real time to alleviate these pressures. 

b. Defendants Relied on Intra-Company Transfers and Other Actions to Fill 

 the Liquidity Gaps 

150. The Company’s Euro RTM strategy and resulting exposure attracted the attention 

of MFGI’s regulator, FINRA, in May 2011. Shortly after learning of the Company’s large 

European sovereign debt exposure, FINRA also learned that the Company was not reserving any 

capital for these trades. In August 2011, FINRA, with the support of the U.S. Securities and 

Exchange Commission (“SEC”), required MFGI to take a $255 million capital charge on the 

Euro RTMs. 

151. When FINRA and the SEC notified MF Global that the new capital charge 

applied retroactively, MFGI became undercapitalized by $150.6 million as of July 31, 2011. The 

retroactive charge required the Company to file net capital deficiency notices with two of its 

regulators, the SEC and the CFTC, for the prior period and to restate its filed regulatory reports 

for the prior period. 

152. After raising $650 million through two public debt offerings in August 2011, the 

Company continued to maintain very little cash on hand and increasingly relied on the FCM to 

fund the B/D. Close to $400 million of the public debt raise proceeds was used to inject capital 

into MFGI for purposes of satisfying FINRA’s capital demand, to cover margin on the positions 

transferred from MFGI to an unregulated affiliate, MFG Special Investor, LLC (“Special 

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Investor”) in order to relieve some of the capital pressure experienced by MFGI, and to provide 

a loan to MFGI for its general liquidity needs. 

153. For at least a year prior to the Company’s collapse and the Debtors’ bankruptcy, 

the FCM provided cash through intraday transfers to the B/D, often in amounts of between $50 

and $100 million. At times between July and October 2011, these intraday transfers were not 

paid back at the end of the day, causing the B/D’s loan from the FCM to roll over on a routine 

basis. 

154. Due to its lack of controls, the Company was unable to identify the specific areas 

or trades that were driving the need for these intraday transfers, and so the Treasury Department 

had to approve intraday transfer requests from the B/D without adequate information. The lack 

of systems also limited the Company’s ability to project its funding needs. The Company had no 

formal process or documentation in place for approval of transfers from the FCM to the B/D. 

155. On or about July 2011, at Defendant Corzine’s request, Defendant Steenkamp 

began to seek more sources of funds – including loans from the FCM – to finance the B/D’s 

trading. At the time, the FCM’s excess funds had eroded from approximately $150 million to 

$75 million. During a telephone conference in late July 2011, which included Serwinski, the 

CFO of MFGI, among its participants, Defendant Steenkamp indicated that there was a proposal 

to utilize unused segregated funds to support the B/D. 

156. When Defendant Steenkamp suggested to Serwinski that the Company was 

considering using segregated funds of FCM customers, Serwinski stated her concerns that using 

segregated funds for investments would be putting the FCM client assets at risk, “even if only 

overnight,” and emphasized that the FCM client asset base “should not be a [B/D] working 

capital source strategy to be relied upon.” Serwinski made it clear to Defendant Steenkamp that 

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she “professionally [did] not agree with the concept of using FCM customer funds to provide 

liquidity to the House [B/D] investment and trading.” 

157. Notwithstanding Serwinski’s concerns, Defendant Corzine continued to probe 

how much of the FCM’s funds could be used by the B/D on a short-term basis to satisfy the 

Company’s liquidity needs. Steenkamp reported on or about August 3, 2011, that, even though 

Corzine understood the regulatory lock-up requirement: 

as part of overall liquidity management, [Corzine] would like to 

know how we can use all surplus daily (even if only $50m), 

maximize it through daily liquidity management and also use other 

securities to fund the lock-up. He also understands using other 

securities would have a cost, but is looking for this group to come 

to him with solutions/options, and also accompanying costs. 

158. Defendants Corzine and Steenkamp continued to promote the potential use of 

customer funds to meet the Company’s growing liquidity pressures in the summer of 2011. 

Notwithstanding the Company’s statutory obligation to segregate customer funds, Defendant 

Corzine nonetheless directed the Finance and Treasury Departments, through Defendant 

Steenkamp, to “maximize” the use of any daily surplus of customer segregated funds. 

159. An August 10, 2011 email written by Assistant Treasurer O’Brien indicated that 

Defendant Steenkamp failed to acknowledge the precarious liquidity position of the Company: 

“Henri [Steenkamp] says to me today ‘. . . we have plenty of cash.’ I was rendered speechless – 

and wanted to say ‘Really, then why is it I need to spend hours every day shuffling cash and 

loans from entity to entity?’ Shell game . . . .” 

160. In September 2011, Defendant Steenkamp again showed his willingness to rely 

upon segregated customer funds, this time to project a healthy image of the Company’s financial 

condition. On August 18, 2011, Defendant Abelow had provided liquidity figures to the United 

Kingdom’s Financial Services Authority (“FSA”) showing that the Company had cash available 

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of $410 million, and that MFGI had available cash of $165 million. When the FSA requested 

updated liquidity numbers in mid-September, Treasury Department employees discovered that, 

in less than a month, the Company’s available cash had dropped from $410 million to $238 

million, and MFGI’s available cash had dropped from $165 million to $25 million. 

161. When the Company provided the updated liquidity figures to the FSA, 

Defendant Steenkamp approved the inclusion of an additional $300 million from the FCM 

segregated fund liquidity pool. Despite the fact that segregated funds had not been included in 

the August report, the Company represented that the September report was “in the same format.” 

162. To ease the capital and liquidity pressures experienced by the Company over the 

summer of 2011 both before and after the imposition of FINRA’s net capital charge, Defendants 

Abelow and Steenkamp initiated several actions to decrease regulatory capital requirements, 

including: (a) the transfer of most of PSG’s positions to Special Investor; (b) the transfer of 

some Euro RTM positions from MFGI to FinCo; and (c) the sale of the Company’s London and 

Asia Pacific affiliate clearing business to the Bank of New York (“BONY”). Defendant Abelow 

was responsible for accelerating the sale of the affiliate business to BONY. 

163. Defendants failed to inform the Board about the B/D’s reliance on FCM funds, 

the B/D’s actual growing use of those funds through intraday loans from the FCM, and the 

increased liquidity pressure that generated the need for these transfers through the summer of 

2011. 

iii. Defendants Failed to Engage in Timely Contingency Planning 

164. Despite months of warnings and reports of liquidity stresses from several 

departments, Defendants waited until August and September 2011 to conduct contingency 

planning. 

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165. In or around August 2011, several Board members directed Defendants to prepare 

an analysis of the potential impact of a downgrade of the Company’s credit rating under various 

scenarios. This analysis ultimately was dubbed “Break the Glass.” Defendants directed, 

reviewed, edited, and ultimately approved the “Break the Glass” analysis for distribution to the 

Board. The analysis specifically identified the Euro RTMs as the largest liquidity drain for the 

Company and observed that liquidity could only be generated through taking a large loss from 

unwinding Euro RTM positions. The analysis also stated that the Company needed to act 

immediately and develop a clear strategy for mitigating the stresses associated with the Euro 

RTM portfolio. 

166. The Break the Glass analysis projected that the Company would survive, even in 

the most “severe stress event.” This erroneous conclusion underestimated the speed and extent 

of the demands that were placed on the Company as a result of the credit rating agency 

downgrades, including the pace and size of customer withdrawals, the failure of the Company’s 

operations to function normally in such a stressed environment, and the ensuing margin increase 

demands by the clearinghouses. Although the analysis had anticipated that the Company had 

sufficient liquidity to survive at least one month, the worst-case scenario unfolded in the span of 

only a few days. 

167. During the process of drafting the Break the Glass analysis, Defendant Abelow 

expressed doubt about its overly optimistic conclusions. In an October 10, 2011 email to 

Defendant Steenkamp, Defendant Abelow observed: 

I [do not] have any real confidence at this point that we know 

our liquidity in each of days 1-7 in event of a stress event. This 

is troubling as we need to provide an answer to [the] board and 

[Corzine] and I need to know so that we can assess if there are 

steps we need to take over [the] next several weeks. 

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(Emphasis added.) 

168. In response to Defendant Abelow’s email, Defendant Steenkamp shared 

Defendant Abelow’s concern: “I felt the same way in reading through this, Brad. It felt like a 

good story at each milestone (day 0, day 7, day 30), but that assumes we get there.” 

169. Despite their concerns about the Company’s ability to forecast its liquidity, 

neither Defendant Abelow nor Defendant Steenkamp took steps to address the issue. 

170. On or about October 5, 2011, Defendant Corzine directed the Company’s Global 

Treasurer, Vinay Mahajan (“Mahajan”), who had just joined the Company in mid-August, to 

engage in liquidity contingency planning. Specifically, Corzine asked Mahajan to: 

a. Locate funding for the Company’s corporate portfolio in the event that the 

secured financing desk was unable to finance those investments through 

repurchase transactions; 

b. Identify positions in the box which could be sold to generate liquidity; and 

c. Build a global liquidity buffer by preparing for a draw on the RCF to support 

the Company’s corporate portfolio. 

 

171. On or about October 6, 2011, Mahajan informed Defendants Abelow and 

Steenkamp of the following major increased stresses to the Company’s liquidity: 

a. A $30 million increase in the Company’s box position; 

b. $82 million in haircuts associated with the fixed income business; 

c. Breaches of regulatory capital limits by the fixed income and the asset-backed 

securities trading desks; and 

d. A liquidity drain caused by corporate and asset-backed and mortgage-backed 

securities positions. 

Mahajan reported that the sole remaining cash pool was $80 million used by the FCM to finance 

client activity. 

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172. Defendant Steenkamp outlined the Company’s liquidity problems in an October 

6, 2011 email to Defendants Corzine, Abelow and others: 

There remains a significant stress on liquidity . . . . Of most 

concern, is the sustained levels of stress and the lack of signs this 

will reduce soon. It makes drawdowns of the [RCF] more 

challenging, as we cannot guarantee certainty of immediate 

repayment. The [RCF] is not meant as a source of permanent 

liquidity.

TODAY, TOMORROW −

Haircuts and box positions today have continued to increase and 

were fortunately offset by FCM increases (that is not 

controllable). However, liquidity remains under $100m with the 

expectation for this to drop tomorrow as repo sources 

(rebalancing) are reduced. . . . 

THE FUTURE −

However, Jon, more worrying is we need to address the sustained 

stress. In summary, we have three pools of liquidity for [MFGI]- 

(1) [FinCo] cash which is real and permanent, (2) FCM excess 

cash which is temporary and volatile, as depends on how 

customers post margin, and (3) the situation of our broker-dealer 

that is currently unable to fund itself, and more worrying 

continues to need more cash than we have in [FinCo], thereby 

having us dip into FCM excess every day. This should be 

temporary but is becoming permanent, and the FCM cash is not 

reliable. Why is [the B/D] unable to fund itself? Part of it is the 

permanent pool of liquidity needed for RTM’s, but we also see 

continued haircut increases in fixed income, increased funding 

needed for PSG and box size being permanently large. . . . [T]his 

continued liquidity stress is not sustainable without either more 

permanent (not temp) liquidity, or mitigating steps taken. 

173. This email highlighted liquidity problems that MF Global was facing, including: 

a. The inability to rely on the RCF as a source of liquidity; 

b. Increased funding needed for PSG and the growing size of the box; 

 

c. The temporary and volatile nature of FCM cash that made it an inappropriate 

source of sustained funding; 

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d. Shrinking cash available for liquidity funding; and 

e. The inability of the B/D to fund itself. 

174. Defendants also were aware of the following “red flags” that highlighted the 

precarious financial situation of the Company: 

a. On October 11, 2011, Abelow and Steenkamp learned that the B/D was using 

up $210 million of FinCo’s $226 million liquidity pool; 

b. On October 13, 2011, Abelow and Steenkamp further learned that FinCo’s 

$233 million balance had been completely used up by the B/D, which was 

already borrowing $34 million from the FCM; 

c. By October 14, 2011, Abelow and Steenkamp learned that the B/D was using 

$318 million from a combination of FinCo ($249 million), the FCM balance 

($53 million), and the FCM buffer ($16 million), which consisted of funds 

held by the Company in customer accounts in excess of certain regulatory 

requirements; 

d. On October 14, 2011, Steenkamp described the Company’s liquidity to 

Defendant Corzine as “very tight;” and 

e. On October 17, 2011, Steenkamp informed Corzine and Abelow that, instead 

of ending the day with positive amounts of cash, the Company had actually 

ended the day with negative $16 million. Due to a regulatory lock-up 

requirement that MFGI lock up $19 million to meet potential customer 

demands, the Company would have a negative $35 million start the following 

day. 

175. An October 17, 2011 analysis of the key drains on the Company’s liquidity 

between June 30 and October 14, which was provided to Defendants, indicated that, in less than 

four months, the margin requirements associated with the Euro RTM positions had increased 

from $248 to $427 million, while the box collateral had gone from zero to $126 million. The 

Company experienced further liquidity stresses from the additional haircuts paid to finance its 

portfolio of corporate bonds. 

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E. Events Immediately Preceding the Chapter 11 Cases 

176. As of October 17, 2011, MF Global’s liquidity was severely depleted. Since the 

end of June 2011, the Company went from having excess cash and fully paid securities of $149 

million to needing $318 million in cash. That increased funding need was due in part to the 

aforementioned increase in Euro RTM margin calls and in part to the funding needed to finance 

the securities in the box, a funding requirement that had not existed on June 30, 2011. 

177. An October 17, 2011 article in The Wall Street Journal entitled “MF Global Told 

to Boost Capital” reported FINRA’s regulatory capital charge as follows: “Regulators ordered 

MF Global Holdings Ltd., the brokerage firm led by former New Jersey Gov. Jon Corzine, to 

boost its net capital in August after they grew concerned about its exposure to European debt.” 

The credit rating agencies downgraded the Company’s credit ratings within a week of The Wall 

Street Journal article. 

178. On October 24, 2011, Moody’s Investors Service (“Moody’s”) downgraded MF 

Global to one notch above “junk” status, with a negative watch rating, strongly suggesting that 

Moody’s was planning on a further downgrade. Moody’s rating downgrade was based on its 

belief that (a) the Company would announce lower than expected earnings; and (b) the current 

low interest rate environment and volatile capital markets made it unlikely that MF Global would 

be able to meet, in the short term, the financial targets that Moody’s had set in February 2011 for 

the Company to maintain a Baa2 rating. These targets included generating $200 to $300 million 

in annual pre-tax earnings and maintaining the liquidity and risk management discipline 

necessary as the Company executed its B/D strategy. 

179. Moody’s stated that it had become increasingly concerned about MF Global’s risk 

management and its management’s ability to prudently balance risk and reward as the Company 

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underwent a substantial re-engineering. Moody’s also stated that: “MF Global’s increased 

exposure to European sovereign debt in peripheral countries and its need to inject capital into its 

[B/D] subsidiary to rectify a regulatory capital shortfall highlights the [Company’s] increased 

risk appetite and raises questions about the [Company’s] risk governance.” 

180. On October 25, 2011, the Company announced its results for its second fiscal 

quarter ended September 30, 2011, posting a $191.6 million GAAP net loss, compared with a 

loss of $94.3 million for the same period the prior year. The net loss reflected, among other 

things, a decrease in net revenue primarily due to the contraction of proprietary principal 

activities and valuation allowances against deferred tax assets, which accounted for $119.4 

million of the $191.6 million in GAAP net loss. The deferred tax asset write-off reflected the 

view of management that the Company would not be profitable in the near future. The 

Company’s stock price fell that day by almost 50%. 

181. Despite the liquidity warning signs discussed above, on October 24, 2011, 

Defendant Steenkamp wrote an email to Standard & Poor’s Rating Services (“S&P”) stating, MF 

Global’s “capital and liquidity has never been stronger,” and “MF Global is in its strongest 

position ever as [a] public entity.” During an October 25, 2011 earnings call, Defendants 

Corzine and Steenkamp continued to highlight what they claimed was the Company’s 

strengthened liquidity and capital profile. Defendant Corzine represented that management had 

“substantially improved our capital and liquidity positions” and “husbanded our capital and 

strengthened our liquidity.” Defendant Steenkamp also stated that “the capital market 

transactions this quarter improved [the Company’s] capital and liquidity positions,” its “capital 

structure has never been stronger,” and that management felt “good about [the Company’s] 

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capital structure and liquidity position as well as the strategic direction and progress against the 

plan.” 

182. On October 26, 2011, Fitch Ratings (“Fitch”) downgraded the Company’s stock 

to one notch above investment grade. 

183. Also on October 26, 2011, S&P placed the Company under Negative Credit 

Watch with Negative Implications, taking note of the Company’s “very high” exposure to 

European sovereign debt in relation to its capital base. 

184. Fitch and Moody’s further downgraded the Company to “junk” status on October 

27, 2011, because of its weakened core profitability and increased risk-taking, in the form of its 

Euro RTM positions. This was followed by an increase in margin calls against MFGI and an 

exodus of its customers, threatening overall liquidity. 

185. During the last week prior to the bankruptcy filings of Holdings Ltd. and FinCo, 

the Company’s goal was to sell all the positions in the Company’s portfolio to ensure that it had 

enough cash to make all of its required payments. The Company engaged in a “fire sale” by 

sending bid lists to other Companies showing the securities that the Company was willing to sell. 

However, the Company’s Operations and Treasury Department systems were inadequate to meet 

the challenge of a speedy liquidation of the Company’s assets in this short period of time. 

Among other reasons, the liquidation could not be accomplished due to substandard back office 

systems which generated inaccurate or erroneous fail reports, the lack of a collateral management 

database, and the lack of an integrated global treasury system to track whether money was 

properly moving to the right accounts. The Company’s failure to have back office and treasury 

systems commensurate with the complexity of its operations exacerbated the Company’s 

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problems and prevented it from selling sufficient assets to pay the Company’s debts as they came 

due. 

186. The Company also failed to take advantage of opportunities to mitigate its losses. 

For example, on October 26, 2011, Abelow met with a representative from another B/D who 

offered to consider purchasing MF Global’s portfolio of Euro RTMs. When Abelow attempted 

to arrange a meeting between the representative and Corzine to discuss a possible transaction, 

Corzine refused to meet with him because he was in the process of auctioning some commercial 

paper, and needed to do it before the close of the London market. Consequently, no sale of the 

Euro RTMs was discussed with that B/D at this time, and the Company missed an opportunity to 

sell its Euro RTM portfolio. 

187. During the last week prior to the bankruptcy filings of Holdings Ltd. and FinCo, 

margin requirements on the Euro RTM positions increased dramatically and further stressed the 

Company’s liquidity. Euro RTM margin posted at the clearinghouses increased by $211 million 

to $663 million. On October 25, 2011, MFG UK received a margin call from the LCH for 110% 

margin based on the Company’s downgrade by Moody’s of the Company’s issuer credit rating to 

Baa3, which took effect on October 27, 2011. The accelerated pace of the Euro RTM-related 

margin calls coupled with other liquidity pressures experienced by the Company ultimately 

caused MFGI to fail to meet the last $310 million in margin calls received on October 31, 2011. 

188. In an attempt to alleviate its liquidity pressures, on five separate instances 

between October 18 and 28, 2011the Company drew a total of $930 million on its $1.2 billion 

RCF. By October 27, the facility was almost fully drawn, with the exception of $27 million that 

one of the syndicate banks refused to fund. 

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189. On October 26, 2011, to satisfy the need for additional liquidity at the B/D, MFGI 

transferred $615 million from the FCM. Most, if not all, of those funds came from customer 

funds, and none of those funds were returned to the FCM that day. Even well after the end of 

that business day, members of the Treasury Department did not know whether the funds 

transferred actually came from customer funds, due to the Company’s inability to monitor 

segregated funds in real time. In fact, on that day, the FCM had negative customer segregated 

funds. 

190. Treasury Department personnel also withdrew an additional $200 million from 

segregated customer funds on October 28, 2011. MFG UK had a $175 million obligation to 

JPMorgan Chase (“JPM”) resulting from several overdrafts, and Defendant Corzine directed the 

Treasury Department to satisfy this obligation. O’Brien arranged a $200 million wire transfer 

from an MFGI customer segregated account to a Company house account, and then transferred 

$175 million of that amount to an MFG UK account at JPM. 

191. At the time O’Brien transferred the $200 million from segregated funds, it was 

unclear whether that amount was available in excess customer funds. When JPM sought 

assurances that the money transferred from MFGI did not represent customer funds, O’Brien was 

unable to provide that assurance, at least in part because the Company’s internal reports were 

inadequate to monitor the Company’s liquidity and customer segregated funds accurately and in 

real time. Treasury Department personnel subsequently learned that, as of the close of business 

on October 27, 2011, the Company’s segregated accounts had a deficiency of over $300 million. 

192. When Financial Regulatory Group staff attempted to reconcile the deficiency, 

they determined that the deficiency was the result of five transactions totaling $540 million that 

had been booked incorrectly. To make matters worse, these Financial Regulatory Group staff 

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members, on their own authority, manually adjusted the Company’s segregation statement by 

$540 million in the absence of back-up for that adjustment, and thus reported an excess $200 

million in segregation on reports filed with the regulators. On the following day, when a 

member of the Financial Regulatory Group prepared the Segregation Statement and Secured 

Statement, he discovered a deficit of almost $1 billion. 

193. Early in the morning of October 31, 2011, MFGI reported a $952 million deficit 

in segregated funds as of the close of business on October 28. Initially, Finance and Treasury 

personnel erroneously believed that the deficit was due to an accounting error. A subsequent 

review by the Trustee in MFGI’s SIPA liquidation determined that MFGI had a deficiency in its 

segregated funds as early as mid-day on October 26, 2011. 

194. The Company explored a number of strategic alternatives, including a sale of all 

or parts of the business, before the Debtors went bankrupt. On October 30, 2011, with the 

Company’s overall liquidity quickly diminishing to unsustainable levels, a sale to a third party 

collapsed when the Company informed the would-be buyer that it had identified a potential 

significant shortfall in customer segregated funds. 

COUNT I 

BREACH OF FIDUCIARY DUTY OF CARE 

BY DEFENDANTS CORZINE, ABELOW AND STEENKAMP 

195. Plaintiff repeats and realleges each and every allegation above, as if fully set forth 

herein. 

196. By virtue of Defendants’ positions with MF Global, a fiduciary relationship 

existed between Defendants and the Company. 

197. As fiduciaries, Defendants were obligated by their duty of care to act at all times 

on an informed basis, using the amount of care that a reasonable person in Defendants’ positions 

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would use under similar circumstances. Defendants also were obligated to act rationally and 

with the highest degree of good faith. 

198. Defendants breached their fiduciary duty of care when they, among other things: 

a. Embarked on a transformation of the Company’s business, including entering 

into the Euro RTM trades and proprietary trades, without taking steps to 

ensure that the Company’s controls and procedures were adequate to, among 

other things, monitor and determine its liquidity in real time, to forecast its 

liquidity, and to track intra-company transfers of funds; 

b. Failed to fully inform themselves of all material information reasonably 

available to them as to the state of the Company’s systems and liquidity, prior 

to making the consequential business decision of transforming the Company’s 

business model from that of a commodities broker to that of a B/D and 

investment bank and increasingly engaging in proprietary trading, all of which 

put the Company’s balance sheet at risk; 

c. Failed to fully inform themselves of all material information reasonably 

available to them, and to act with requisite care in the discharge of their 

duties, in their pursuit of a short-term revenue strategy consisting of 

transacting in Euro RTMs; 

d. Engaged in the Euro RTM strategy without a reasonable inquiry as to the 

liquidity risks posed by these investments; 

e. Failed to adequately consider the advice and warnings of the Company’s 

CROs in connection with the risks posed by the Euro RTM strategy; and 

f. Failed to inform the Board about the Company’s liquidity challenges and the 

deficiencies in its systems and controls. 

199. In committing the breaches set forth above, Defendants were grossly negligent in 

the performance of their duties. 

200. Defendants’ acts and omissions were not a rational and/or good faith exercise of 

prudent business judgment to protect and promote the Company’s interests. 

201. As a result of the conduct alleged herein, Defendants are liable to the Debtors and 

the Company. 

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202. As a direct and proximate result of Defendants’ breaches of their fiduciary duty of 

care, the Company collapsed, the Debtors commenced bankruptcy proceedings, and the Debtors 

and the Company sustained significant damages in an amount to be ascertained. 

COUNT II 

BREACH OF FIDUCIARY DUTY OF LOYALTY 

BY DEFENDANTS CORZINE, ABELOW AND STEENKAMP 

203. Plaintiff repeats and realleges each and every allegation above, as if fully set forth 

herein. 

204. By virtue of Defendants’ positions as officers of MF Global, a fiduciary 

relationship existed between Defendants and the Company. 

205. As fiduciaries, Defendants were obligated by their duty of loyalty to the Company 

to act in a manner consistent with the best interests of the Company. 

206. Defendants breached their fiduciary duty of loyalty to the Company by repeatedly 

failing to act in the face of a known duty to act, demonstrating a conscious disregard for their 

duties as officers of the Company. Among other things, Defendants failed to develop the 

appropriate controls, procedures and systems needed to transform the Company’s business into a 

full-scale investment bank pursuant to Defendant Corzine’s strategy; and committed the 

Company to proprietary and Euro RTM trading without ensuring that the Company had 

sufficient controls and adequate liquidity to properly manage the risks inherent in such trading. 

207. Defendants’ acts and omissions were not a rational and/or good faith exercise of 

prudent business judgment to protect and promote the Company’s interests. 

208. As a result of the conduct alleged herein, Defendants are liable to the Debtors and 

the Company. 

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209. As a direct and proximate result of Defendants’ failures to satisfy their fiduciary 

duty of loyalty, the Company collapsed, the Debtors commenced bankruptcy proceedings, and 

the Debtors and the Company sustained significant damages in an amount to be ascertained. 

COUNT III 

BREACH OF FIDUCIARY DUTY OF OVERSIGHT BY 

DEFENDANTS CORZINE, ABELOW AND STEENKAMP 

210. Plaintiff repeats and realleges each and every allegation above, as if fully set forth 

herein. 

211. By virtue of Defendants’ positions with MF Global, a fiduciary relationship 

existed between Defendants and the Company. 

212. As fiduciaries, Defendants owed the Company a duty to monitor and exercise 

oversight, and to act in good faith and in the best interests of the Company. 

213. Defendants were required to exercise reasonable and prudent supervision over the 

management, policies, practices, controls, and financial affairs of the Company. Upon receiving 

notice or information of imprudent or unsound practices, Defendants were required to make a 

reasonable investigation and to correct those practices. Defendants also were required to conduct 

the affairs of the Company in an efficient, businesslike manner so as to make it possible to 

maximize the profitability of the Company and to assure that business risks taken were 

reasonable in relation to, among other things, the potential profit the transactions offered. 

214. Defendants breached their fiduciary duty of oversight by the acts and omissions 

set forth herein, including, but not limited to: 

a. Defendants’ failures to implement a system to accurately track the Company’s 

available liquidity and other customary reporting and information systems or 

controls to monitor the business; 

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b. Defendants’ failures to properly monitor the risks associated with the 

Company’s proprietary trading strategy and investment in Euro RTMs; 

c. Defendants’ failures to monitor and oversee the Company’s operations by 

failing to correct the Company’s deficient systems, despite numerous reports 

flagging their deficiencies; 

d. Defendants’ failures to heed the CRO’s warnings about the worsening market 

conditions in Europe and the Company’s increased liquidity exposure 

stemming therefrom; and 

e. Defendants’ failures to inform the Board about the Company’s liquidity 

challenges and the deficiencies in its systems and controls. 

215. Defendants’ acts and omissions were not a rational and/or good faith exercise of 

prudent business judgment to protect and promote the Company’s interests. 

216. As a result of the conduct alleged herein, Defendants are liable to the Debtors and 

the Company. 

217. As a direct and proximate result of Defendants’ failures to satisfy their fiduciary 

duty to monitor the Company’s affairs, the Company collapsed, the Debtors commenced 

bankruptcy proceedings, and the Debtors and the Company sustained significant damages in an 

amount to be ascertained. 

RELIEF REQUESTED 

WHEREFORE, Plaintiff prays for judgment: 

1. Awarding Plaintiff damages in an amount to be determined at trial; 

2. Awarding Plaintiff its attorney’s fees, costs, and other expenses incurred in this 

action; and 

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3. Granting Plaintiff such other and further relief as the Court deems appropriate. 

New York, New York 

Dated: April 22, 2013 Respectfully Submitted, 

MORRISON & FOERSTER LLP 

By: /s/ Adam S. Hoffinger 

Adam S. Hoffinger 

Daniel A. Nathan 

2000 Pennsylvania Ave., NW 

Washington, DC 20006-1888 

Tel.: (202) 887-1500 

Fax: (202) 887-0763 

ahoffinger@mofo.com 

dnathan@mofo.com 

Brett H. Miller 

1290 Avenue of the Americas 

New York, NY 10140-0050 

Tel.: (212) 468-8000 

Fax: (212) 468-7900 

bmiller@mofo.com 

Attorneys for the Chapter 11 Trustee, Louis J. Freeh 

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