JPMorgan, Goldman Sachs Sued Over MF Global Collapse

Reuters reports that Bank of America (BAC), Citigroup Inc. (C), Deutsche Bank (DB), Goldman Sachs (GS) and JPMorgan (JPM) were among the banks sued Friday afternoon in Manhattan federal court by two pension funds over losses on securities of broker-dealer IMF Global Holdings Ltd. (MF).

The complaint, which seeks to represent other shareholders in a class-action, or group suit, was filed by IBEW Local 90 Pension Fund and the Plumbers & Pipefitters’ Local #562 Pension Fund. In their complaints both funds state that the “registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the New York based company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.”

The complaint also said that the “banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees”, but that their “failure to conduct an adequate due diligence investigation was a substantial factor” in MF Global’s collapse, as well as in defaults on the notes.”

The lawsuits seeks damages for investors “between February 3, 2011 and October 31, 2011 in MF Global securities, including its 1.875 percent convertible senior notes maturing in 2016, its 3.375 percent convertible senior notes maturing in 2018, and its 6.25 percent senior notes maturing in 2016.”

Other defendants in the complaint include several officials associated with MF Global, including former Chief Executive Jon Corzine.

MF Global Holdings filed for bankruptcy Oct. 31, 2011 after getting margin calls and listing debt of nearly $40 billion.

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