Securities Law Blog

Three farmers and a cattle-raising operation in Montana have filed a lawsuit against former CEO, Jon Corzine, of the collapsed commodity brokerage MF Global Holdings Ltd. The lawsuit alleges the executives failed to disclose to customers that their money was used to finance MF Global’s bad bets on European sovereign debt. The group seeks to represent a nationwide group of commodities futures customers whose money went missing amid the multi-billion dollar bankruptcy of MF Global.

The lawsuit is one of many filed since the October 2011 bankruptcy filing that was reportedly the result of Mr. Corzine’s $6.3 billion bet on European bonds. Mr. Corzine began at MF Global in March 2010 when he was told he needed to rev up profits fast or face downgrades on the securities firm’s debt. He quickly cut hundreds of employees and hired 1,100 new traders and other employees, and encouraged traders to make larger bets. According to reports, his style included riskier businesses that bet the firm’s own money, increasing the emphasis on higher-risk products like mortgage-backed securities and stock-index derivatives.

Faced with the short-term pressures of increasing profits, he turned to an investment in high-yielding European sovereign bonds structured as a “repurchase to maturity.” Initially MF Global received a $39 million jolt in revenue from the trade. When FINRA learned of MF Global’s sovereign-debt trades in the company’s annual report in May 2011, the European bet had grown to $6 billion. FINRA told Mr. Corzine that MF’s brokerage unit would have to set aside $150 million in case the trade soured.

As Europe’s financial instability increased in August and September, MF Global shares fell more than 40%. In October the company started selling the bonds to raise cash as customers were fleeing and counterparties wanted more collateral.

According to the bankruptcy trustee of MF Global’s brokerage unit, an estimated $1.2 billion in customer funds remain missing. About 500 employees are left at the company to help wind down MF Global and look for the missing customer money.

The SEC stopped the sale of fraudulent securities before anyone had the misfortune of investing with Illinois-based investment advisor Anthony Fields. Using various social media sites, including LinkedIn, Fields allegedly offered more than $500 billion in fictitious securities. According to the SEC, he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.”

Fields is the CEO and Chief Compliance Officer of his companies Anthony Fields & Associates (AFA) and Platinum Securities Brokers. According to the SEC’s complaint, Fields provided false and misleading information concerning AFA’s assets under management, clients, and operational history to the public through its website and SEC filings. Fields also allegedly failed to maintain required books and records, did not implement adequate compliance policies and procedures, and promoted himself as a broker-dealer while he was not registered with the SEC or FINRA.

To combat the exploitation of potential investors through social media sites, the SEC has begun to issue investor alerts. The alerts aim to help investors be better aware of fraudulent investment schemes that use social media, and provide tips for checking the backgrounds of advisors and brokers.