Oscars snafu shadows start of trial
NEW YORK — Jury selection in the trial between MF Global, the brokerage house run by former New Jersey Gov. Jon Corzine, and the accounting firm PricewaterhouseCoopers began Monday.
What was originally a highly technical case newsworthy mostly because it involved the former governor has garnered additional interest from the public and media. PricewaterhouseCoopers was the accounting firm charged with tabulating and adjudicating the Oscars. But in an eyeball- popping mistake, the firm’s accountants handed the wrong envelope to actor- presenter Warren Beatty, who announced that La La Land won Best Picture when it really was Moonlight.
Even potential jurors were not immune to the Oscar debacle. When District Judge Victor Marrero asked the jurors if any of them had any “strong feelings or opinions” about PricewaterhouseCoopers that would impede their ability to be impartial, not directly referencing PricewaterhouseCoopers’ role in the Oscars, more than a third of jurors raised their hands. When asked if any of the jurors knew or had opinions of Corzine, roughly half of the pool raised their hands.
The case finds its origins in the months leading up to and following MF Global’s sudden bankruptcy in late 2011.
At the time, MF Global was a commodities- focused brokerage house that had never fully recovered from the financial crisis. The firm hired Corzine, the former governor and a former CEO of Goldman Sachs, to help engineer a turnaround.
Part of Corzine’s turnaround plan involved buying what’s known as repurchase-to-maturity agreements, a relatively low- risk trade that is quite common on Wall Street. MF Global borrowed money to purchase European government bonds and used them to pledge as collateral for the money it borrowed. In theory, MF Global would have pocketed a profit that would have been the difference between how much it cost MF Global to borrow and how much interest those European government bonds would earn.
But the European sovereign debt crisis that came in the second half of 2011 ended up blowing up in MF Global’s face. Prices for European bonds dropped sharply, and since those bonds were pledged as collateral, regulators and creditors required MF Global to raise more capital. Ratings agencies downgraded the firm. Within a week, MF Global filed for Chapter 11 bankruptcy — the second- largest brokerage to go into bankruptcy after Lehman Brothers.
MF Global argues that PricewaterhouseCoopers, the firm’s auditor at the time, signed off on a decision to hold these repurchase agreements off the company’s balance sheet. The argument was that since the bonds were pledged as collateral and held to maturity, they didn’t need to be reflected on the firm’s books. The firm’s legal remnants are suing PricewaterhouseCoopers for $ 3 billion.
PricewaterhouseCoopers argues that how MF Global accounted for the repurchase agreements on its balance sheet had little to do with the fact that MF Global made these large bets on European bonds in the first place.
“MF Global’s bankruptcy was the ultimate consequence of its own business decisions, market contagion, and an unfavorable global economic climate,” according to PricewaterhouseCoopers’s legal counsel King & Spalding LLP.
Opening statements are expected to begin today. The trial is estimated to last five weeks. Corzine is expected to testify in his role as CEO of MF Global in the coming weeks.