U.S. judge deals PwC a setback at MF Global malpractice trial

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By Jonathan Stempel | NEW YORK

NEW YORK A federal judge has rejected
PricewaterhouseCoopers LLP’s bid to sharply restrict how the
bankruptcy plan administrator for Jon Corzine’s defunct
brokerage MF Global Holdings Ltd pursues its $3 billion
malpractice case against the auditor.

Ruling eight days after the trial began, U.S. District Judge
Victor Marrero in Manhattan refused to force the administrator,
which is seeking money for MF Global creditors, to stick to what
PwC called its original theory of why MF Global went bankrupt on
Oct. 31, 2011.

PwC said the administrator has in three years of litigation
blamed the bankruptcy on a $6.3 billion European sovereign debt
wager that the futures and commodities brokerage would not have
made but for its negligent accounting advice.

But PwC said it was blindsided when the administrator at
trial began blaming confusion and a lack of trust among
customers, investors and lenders in MF Global’s financial
statements, which in turn were caused by PwC’s advice.

The auditor sought to exclude all evidence supporting that
theory, including testimony from Corzine, or get a mistrial.

But the judge said the administrator had blamed PwC before
for the loss of confidence in MF Global, including during its
lawyer’s March 7 opening statement.

“Although PwC may well be surprised that some of the prior
allegations in the case may differ from theory of causation the
plan administrator has advanced up to this point at trial,
because that theory has been disclosed before, PwC cannot at
this late stage claim to be prejudiced,” Marrero wrote.

Corzine, a former New Jersey governor and senator and
Goldman Sachs co-chairman, has testified that the
European debt wager was low-risk and ultimately paid in full,
but the market did not understand it.

PwC has blamed Corzine’s risky trading and business strategy
for MF Global’s collapse, and expects to win at trial “regardless of the causation theory,” Rich Marooney, a lawyer
for PwC, said in a statement after Marrero ruled.

The trial is expected to last five weeks.

The case is MF Global Holdings Ltd as Plan Administrator v
PricewaterhouseCoopers LLP, U.S. District Court, Southern
District of New York, No. 14-02197.

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