Former New Jersey Governor Jon Corzine and other executives from MF Global were recently sued over the 2011 collapse of the commodity trading firm. In the suit, the bankruptcy trustee claims Corzine and others caused the firm to fail through a risky trading strategy and “grossly negligent” oversight. Corzine allegedly was aware that the trades were high risk, but failed to implement proper policies to protect the firm. In particular, the lawsuit contends Corzine breached his duties to the shareholders of MF Global and failed to act in good faith, allegedly causing the firm losses in excess of $1 billion. Corzine has vehemently denied the allegations and characterized the lawsuit as “a clear case of Monday Morning quarterbacking.”
The voluminous complaint filed against Corzine is not termed as a malpractice claim but has all the hallmarks of a malpractice lawsuit. Allegedly, Corzine negligently implemented and executed an investment strategy that caused investors to incur massive losses and also caused MF Global to collapse. Specifically, the firm reportedly failed because of a disastrous bet on European debt.
Similar allegations are routinely lodged at professionals associated with these types of ventures and transactions. The lesson is that financial professionals such as investment advisors and hedge fund managers are inherently at risk for malpractice lawsuits when their investment strategies fail. Accordingly, strategies must be well documented and professionals must ensure that appropriate risk management tools are in place.