998 F. Supp. 2d 157
S.D.N.Y.2014Background
- MF Global Inc. customer funds were allegedly segregated and safeguarded under CEA/CFTC rules but were transferred to MF Global’s proprietary operations during a liquidity crisis, resulting in about $1.6 billion missing from segregated accounts.
- Plaintiffs—commodities customers and the SIPA trustee—filed a Consolidated Amended Class Action Complaint for violations of the CEA and common law against MF Global executives (D&O), and PwC.
- D&O defendants allegedly controlled MF Global/MFGI and approved/participated in transfers from customer accounts to support proprietary activities, creating a “shell game” that harmed customers.
- PwC allegedly failed to detect material inadequacies in MFGI’s controls during audits 2010–2011, and to test segregation calculations as required by CEA/CFTC Regulations.
- The court addresses Rule 12(b)(6) dismissals, applying New York law for fiduciary duties, assesses aiding-and-abetting liability under the CEA, and considers standing and near-privity issues, ultimately granting in part and denying in part the motions to dismiss.
- The court grants leave to replead only upon a good-faith, compelling request within 21 days and dismisses several counts against PwC and certain D&O defendants, with others surviving for further development.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Direct CEA violation by individuals under Section 22 | Plaintiffs allege direct liability under §25(a)(1)(B) through MF GIs handling of deposits. | Plaintiffs fail to show a §22(a)(1)(B) relationship with Corzine/O’Brien. | Count I dismissed for lack of Section 22 relationship. |
| Aiding and abetting CEA violations by D&O | D&O aided and abetted MF GIs breaches. | Some D&O acted without requisite intent or knowledge. | Counts as to Serwinski and Ferber dismissed; others survive. |
| Breach of fiduciary duty and choice of law | New York law should apply; D&O owed fiduciary duties to Customers. | Delaware internal affairs doctrine should apply due to incorporation. | New York law applies; Counts Three, Five, Eleven dismissed as derivative; others continue for surviving Defendants. |
| Negligence and economic loss doctrine | C&E/CFTC duties create independent tort duty to customers; economic loss doctrine may not bar Count Six. | Count Seven barred as contract-based; Count Six survives. | Count Seven dismissed; Count Six survives against most Defendants; others addressed later. |
| Near-privity and auditor liability (PwC) | Customers relied on PwC’s audits; linking conduct alleged. | Near-privity not established; linking conduct absent. | Trustee claims against PwC dismissed under Kirschner/BDO Seidman framework. |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (U.S. 1988) (a private right of action requires active participation of a party in the wrongdoing)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (N.Y. 1985) (near-privity test for accountant liability under credit Alliance)
- Krys v. Butt, 486 Fed.Appx. 153 (2d Cir. 2012) (derivative claims against corporate officers rejected; no personal fiduciary duty to customers)
- In re Refco Inc. Sec. Litig. (Refco II), 826 F.Supp.2d 478 (S.D.N.Y.2011) (fiduciary duties and related claims; proceeding in context of Refco litigation)
- BDO Seidman, LLP v. Hirshberg, 222 F.3d 63 (2d Cir. 2000) (near-privity and linking conduct in auditor liability)
- Kirschner v. KPMG LLP, 15 N.Y.3d 446 (N.Y. 2010) (in pari delicto applicable to auditor claims against external auditor)
- Amaranth Natural Gas Commodities Litig., 730 F.3d 170 (2d Cir. 2013) (aiding-and-abetting standard refined; holistic view of complaint)