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MF Global Holdings Ltd. v. PricewaterhouseCoopers LLP

United States District Court, S.D. New York

July 9, 2014

MF GLOBAL HOLDINGS LTD., AS PLAN ADMINISTRATOR, Plaintiff,
v.
PRICEWATERHOUSECOOPERS LLP, Defendant

Decided July 8, 2014

For Mf Global Holdings Ltd., as plan administrator, Plaintiff: Daniel J. Fetterman, Michael Craig Harwood, Kasowitz, Benson, Torres & Friedman, LLP (NYC), New York, N.Y. USA.

For Pricewaterhousecoopers L.L.P., Defendant: James J. Capra, Jr, LEAD ATTORNEY, David M. Fine, James P. Cusick, King & Spalding LLP (NYC), New York, N.Y. USA.

Page 207

DECISION AND ORDER

Victor Marrero, United States District Judge.

By Complaint dated March 28, 2014 (the " Complaint" ), plaintiff MF Global Holdings Ltd., as Plan Administrator (the " Plan Administrator" ), filed this action against defendant PricewaterhouseCoopers LLP (" PwC" ). (Dkt. No. 1.) The Complaint alleges that PwC, in its role as outside auditor and accountant for MF Global Holdings Ltd. (" MF Global" ), engaged in " extraordinary and egregious professional malpractice and negligence." (Compl. ¶ 1.) The Plan Administrator, as assignee of MF Global's claims, seeks damages of at least $1 billion. (Id. ¶ 7.)

PwC moved to dismiss the Complaint. (Dkt. No. 12.) It argued, in part, that the doctrine of in pari delicto barred the Plan Administrator's claims. (Mem. of Law Supp. PricewaterhouseCoopers LLP's Mot. to Dismiss, dated May 23, 2014 (" PwC's Mem." ), at 7-13, Dkt. No. 13.) During a May 27, 2014 telephone conference, the Court instructed the parties to restrict remaining briefing to the in pari delicto issue, which the Court saw as potentially dispositive.

For the reasons detailed below, the Court now finds that the doctrine of in pari delicto does not bar the Plan Administrator's claims against PwC. The Court thus directs the parties to resume briefing on the remaining arguments in support of PwC's motion to dismiss.

I . BACKGROUND[1]

This case is one of many that arise out of the catastrophic collapse of MF Global.

Page 208

The Court has described in detail the facts and circumstances surrounding that collapse. See, e.g., In re MF Global Holdings Ltd. Inv. Litig. (MF Global II), 998 F.Supp.2d 157, No. 11 Civ. 7866, 2014 WL 667481, at *4-9 (S.D.N.Y. Feb. 11, 2014) (the " Commodities Customer Action" ); In re MF Global Holdings Ltd. Sec. Litig. (MF Global I), 982 F.Supp.2d 277, 293-300 (S.D.N.Y. 2013) (the " Securities Action" ). The Court assumes familiarity with these prior decisions.

Briefly restated, the relevant facts here are as follows. Under the leadership of CEO Jon S. Corzine (" Corzine" ), MF Global undertook a new investment strategy to try to reverse the company's recent history of losses. Corzine's new plan involved proprietary investments in European sovereign debt through repurchase-to-maturity (" RTM" ) transactions (the " RTM Strategy" ). MF Global coordinated these investments with two of its affiliates, MF Global Inc. (" MFGI" ) and MF Global U.K. Limited (" MFG-UK" ). In the Securities Action, the Court described the mechanism and benefits of the RTM Strategy:

[F]irst, MFG-UK purchased European sovereign debt securities on the London Clearing House (" LCH" ) exchange. MFG-UK then sold those securities to MFGI. Next, MFGI and MFG-UK entered into an RTM agreement. MFGI thus sold the securities to MFG-UK while the firms simultaneously entered a contract for MFGI to repurchase the securities on the securities' maturity dates, at the same price plus a pre-negotiated interest payment. MFG-UK, which now owned the securities, then engaged in a similar repurchase transaction with a counterparty through the LCH. The repurchase date on that transaction was scheduled for two days before the securities' maturity date. MFG-UK thus bore the risk of default on the security, and MFGI was ...

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