The brokerage firm MF Global Holdings Limited sued PricewaterhouseCoopers (PwC) for at least $1 billion on Friday. The accusation against the auditor of PwC is in connection with the investments in European sovereign debt by the brokerage company. According to MF Global, PwC gave “flatly erroneous” information which led to the collapse of the brokerage firm.
The complaint pointed out that PwC knew that the investment would add considerable risk to the brokerage firm’s already weak balance sheet. It said that if MF Global had received proper advice then it would have restricted its market exposure.
As per the complaint submitted in in Manhattan’s US District Court, PricewaterhouseCoopers carried out professional malpractice by offering improper advice, and consent to, the revenue accounting treatment for the debt by the brokerage firm and its former CEO, Mr. Jon Corzine. The exact complaint says, “PwC’s professional malpractice and negligence were a direct and proximate cause of massive damages the company suffered.”
A PwC representative, Caroline Nolan, conveyed that the subject of the complaint, i.e. the ‘accounting treatment’ has been studied properly by congressional committee, regulators and trustees. She added saying that none of the trustees or the regulators found anything unusual about the accounting and the complaint is basically meritless. As PwC has been sued by MF Global Holdings Limited for $1 billion, the case will definitely take considerable amount of time to conclude due to its sensitive nature.
Jon Corzine is a former U.S. senator and governor from New Jersey, and also the former CEO of Goldman Sachs. He began his tenure in MF Global back in 2010 and continued till November of 2011. Although he is not directly accused in the PwC case, he does have several lawsuits over MF Global initiated by investors and customers.
The former CEO of MF Global invested $6.3 billion in debt of countries like Italy, Portugal, Spain, Ireland and Belgium to proceed with his strategy of transforming his commodities brokerage into a global bank of investment. A director of the company, Mr. David Schamis, did not like the structure of accounting, reported several media outlets, but he could not be reached for comment.
As Europe’s economy de-stabilized, the brokerage firm struggled with worries about the credit rating downgrades, margin calls, and debt ending in its bankruptcy in October of 2011. Not only MF Global, the customers of the firm also sued the advisory company of PwC, but those claims were dismissed by the court last month. The advisory company is quite reputed for its IT services and technical outsourcing, but such a accusation against it, has disappointed many employees.
On the other hand, PricewaterhouseCoopers is a reputed multinational company with over 180,000 employees. In the financial year of 2012, it registered revenue of $31.5 billion in which $8.7 billion were for advisory practices. PwC issued a statement via email and pointed out the fact that the collapse of MF Global happened 2.5 years back and the complaint disappointed them pretty much due to its meritless content. Nevertheless, as MF Global Holdings Limited sued PwC for $1 billion, it is only a court verdict that can bring out the truth whether the complaint has any merit or not.
By Sunando Basu