Florida Securities Fraud Lawyer Blog

MF Global Holdings Ltd. and its broker-dealer arm MF Global, Inc. filed for bankruptcy protection earlier this week in New York after dealings with the firms were suspended by the Federal Reserve Bank of New York and the major exchanges. JPMorgan Chase was listed in the bankruptcy filing as the largest unsecured creditor with $1.2 billion in outstanding debt.

MF Global, formerly part of Man Group Plc, was founded in England in 1793 and is lead by Chief Executive Officer Jon S. Corzine, the former head of Goldman Sachs, prior U.S. senator and past governor of New Jersey.

Prior to Corzine's arrival in 2010, MF Global's business was largely limited to arranging and processing trades for banks, corporations and investors. Corzine began to diversify the firm in pursuit of his vision that MF Global be a junior version of Goldman Sachs. To accomplish this, MF Global borrowed $40 for every $1 in capital, according to Egan Jones, a rating service. That is more leverage than Lehman Brothers Holdings had at the time of its demise in 2008. MF Global made large bets on commodities, European sovereign debt, futures and derivatives.

Seeing the writing on the wall, in September, the Financial Industry Regulatory Authority required MF Global to reduce its leverage by setting aside more capital. The following month short-term lenders began demanding more collateral for their loans and ratings companies downgraded the firm. On October 25, MF Global reported a net loss of almost $192 million in the last quarter. On October 28, when Bloomberg News reported that MF Global had tapped out two of its credit lines, its shares plummeted and the firm was virtually dead.

Shortly after the filing by MF Global, the Securities Investor Protection Corporation filed an application with the United States District Court for the Southern District of New York seeking a declaration that the customers of MF Global Inc. are in need of the protections available under the Securities Investor Protection Act. The court granted the application and appointed James W. Giddens as trustee for the liquidation.

SIPC board chairman Orlan Johnson, stated, "When the customers of a failed SIPC member brokerage firm have left their securities in the custody of that firm, SIPC acts as quickly as possible to protect those customers. In this case, SIPC initiated the liquidation proceeding within hours of being notified by the SEC that a SIPC case was necessary to protect the investing public."

The SEC has settled with prior Countrywide Financial CEO Angelo Mozilo for $22.5 million in penalties to settle claims that he and two other former Countrywide executives misled investors about the subprime mortgage crisis. The settlement permanently prohibits Mozilo serving as an officer or director of a publicly traded company.

Mozilo's financial penalty is the largest ever paid by a public company's senior executive in an SEC settlement. Mozilo also agreed to $45 million in disgorgement of unjust profits to settle, totaling $67.5 million that will be returned to harmed investors.

The SEC alleged that Mozilo and Countrywide failed to disclose to investors the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market share. Investors were misled by representations assuring them that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. In reality, Countrywide was writing increasingly risky loans and its senior executives knew that defaults and delinquencies in its servicing portfolio as well as the loans it packaged and sold as mortgage-backed securities would rise as a result.

This is yet another example of the major fraud that occurred during the real estate boom with mortgage-back securities. There were numerous mortgages offered by Countrywide to borrowers in Florida during the boom.