Kevin Starke, an analyst with CRT Capital Group LLC, said he's seeing a preference for notes that MF Global issued in the months prior to its bankruptcy; trading in its $325 million of 6.25 percent notes due 2016, issued Aug. 8, rose on Oct. 26 and traded at above-average volume in the days leading up to, and immediately after, its bankruptcy filing. On Oct. 26, volume was 49,293 and on Oct. 28 and Oct. 31, it was about 180,000. The bonds, which traded as high as 92.50 cents on the dollar in the month prior to its bankruptcy, have traded in a range of 50 to 37.50 since MF Global's Oct. 31 bankruptcy.
Refco
MF Global, which was spun off from Man Group Plc in 2007, was built up partly through an acquisition of Refco Inc.'s assets. Refco went bankrupt two months after its August 2005 initial public offering that raised $670 million, saying CEO Phillip Bennett had hidden hundreds of millions of dollars in bad debt.
In 2006, Bawag PSK Bank agreed to pay $683 million for its role in the collapse of Refco to avoid U.S. prosecution, with payments distributed to Refco creditors and investors.
"In Refco's bankruptcy most recoveries came from lawsuits against Bawag, I think people are seeing parallels," Starke said.
Lawsuits against underwriters of Refco's IPO also succeeded, with securities units of Bank of America Corp., Credit Suisse Group AG and Goldman Sachs paying $49.2 million to settle an investor lawsuit alleging fraud.
On The Hook
"If the underwriters had done their jobs they would have flagged this, particularly as investments were made after Europe was in trouble," said John P. Coffey, lead lawyer for shareholders and investors in Refco, speaking about MF Global's August issue of $325 million in bonds. The threshold question for a lawsuit will be whether there was adequate disclosure of risks in the prospectus. If not, the banks that underwrote the offering are "on the hook, jointly and severally," Coffey said.
Coffey, now a managing director at Blackrobe Capital Partners, noted that a suit against the board of MF Global is also possible, depending on the company's audited financial statements.
Other officers at the company include Bradley Abelow, president and chief operating officer since Sept. 2010. Abelow, former chief of staff to Corzine during his tenure as New Jersey governor, oversees day-to-day operating and is directly responsible for risk, according to court papers. The company's chief financial officer since April 2011, Henri Steenkamp, was formerly its chief accounting officer and global controller since 2006. Before that, he was with PricewaterhouseCoopers, MF Global's accountant.