MF Global Sues PwC for Malpractice

The administrator of MF Global Holdings Ltd.’s bankruptcy plan has filed a $1 billion suit against New York-based PwC US (FY12 gross revenue of $10.2 billion), alleging the firm’s accounting advice helped cause MF’s 2011 collapse, according to The Wall Street Journal.

Officials in charge of MF Global’s liquidation said PwC gave “flatly erroneous” advice on how to account for the European sovereign debt that led MF Global into bankruptcy.

“This case arises out of PwC’s extraordinary and egregious professional malpractice and negligence in its role as the longtime outside auditors and accounting experts for MF Global,” says lawyers in court papers filed March 28 in U.S. District Court in Manhattan. MF is seeking “no less” than $1 billion each for professional malpractice and breach of contract, and not less than $10.9 million in unjust enrichment, and is demanding a jury trial, the Journal reported.

Lawyers said PwC “incorrectly and negligently” advised MF Global to account for so-called repo-to-maturity transactions as sales, immediately allowing MF to book revenue on the transactions.

PwC spokeswoman Caroline Nolan says, “During the two-and-a-half years since the collapse of MF Global, the repo-to-maturity accounting that is the subject of today’s complaint has been examined by trustees, regulators and a congressional committee. None of them has found that the accounting for those transactions was incorrect. PwC is disappointed that this meritless claim has been brought.”

MF Global collapsed in November 2011, after then-Chief Executive Jon S. Corzine’s big investment in the European sovereign debt came to light. In its lawsuit, MF said it would not have taken on the huge risk if it had received sound advice. Corzine, former governor and U.S. senator from New Jersey, is still facing multiple lawsuits related to the brokerage firm’s collapse.