NEW YORK (AP) – It was not a huge bet on European bonds that caused the 2011 demise of Wall Street brokerage firm MF Global, but rather “confusion” created by its accountants about the company’s financial condition, former New Jersey Gov. Jon Corzine testified on Thursday.
Corzine, who ran MF Global after leaving the governor’s office, took the stand in a New York trial pitting the legal remnants of the collapsed brokerage against its accounting firm, PricewaterhouseCoopers. MF Global is seeking at least $3 billion in damages, saying PwC’s negligence and malpractice caused the brokerage to go under.
At the center of the trial is $6.3 billion in assets tied to European government bonds that MF Global purchased from Italy, Spain, Belgium, Ireland and Portugal. Another issue is how PwC accounted for $72 million in what’s known as tax-deferred assets that further caused uncertainty about MF Global’s financial health.
Those two issues caused MF Global to be downgraded by the credit rating agencies like Moody’s and counterparties to eventually cut off business from the firm. After a whirlwind week in late October 2011, MF Global filed for bankruptcy.
Corzine testified that the European bonds that MF Global invested in were relatively low-risk and the firm expected to get its money back. All of the bonds were from countries with investment-grade ratings, and at the time, the European Central Bank created a $500 billion facility to help eurozone countries meet their obligations.