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12 CW 0705
CIVIL COVER SHEET
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1 JS44CISDNY
The JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of
REV. 1197
pleadings or other papers as required by law. except as provided by local rules of court, This form, approved b""" 2 7 I'I 01"
WEB 4199 Judicial Conference of the United States in September 1974, is required for use of the Clerk of Court for the
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initiating the civil docket sheet,
PLAINTIFFS DEFENDANTS
THOMAS S. WACKER, individually and on behalf of all Jon Corzine, et al. SEE ATTACHED ADDENDUM FOR
others similarly situated, COMPLETE LIST OF DEFENDANTS
ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER ATTORNEYS (IF KNOWN)
Fleischman Law Firm, 565 Fifth Avenue, Seventh Floor N/A
New York, NY 10017
CAUSE OF ACTION (CITE THE U,S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STATEMENT OF CAUSE)
Plaintiff files this action, under the Commodity Exchange Act (the "CEA"), 7 U.S.C. 1 et seq. and 28 U.S.C. 1332 to
recover damages for loss of funds in commodity brokerage accounts.
Has this or a similar case been previously filed in SDNY at any time? No? 11 Yes? 0 Judge Previously Assigned
If yes, was this case Vol. 0 Invol. 0 Dismissed, No 0 Yes 0 If yes, give date & Case No.
(PLACE AN [xl IN ONE BOX ONL Y) NATURE OF SUIT
ACTIONS UNDER STATUTES
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TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES
CONTRACT
PERSONAL INJURY PERSONAL INJURY [ J610 AGRICULTURE [ J 422 APPEAL [ J400 STATE
11620 FOOD & DRUG 28 USC 158 REAPPORTIONMENT
I j110lNSURANCE
I J120 MARINE
[ ) 310 AIRPLANE [ ) 362 PERSONAL INJURY - []625 DRUG RELATED I ]423 WITHDRAWAL ( J 410 ANTITRUST
I J130 MILLER ACT
I J 315 AIRPLANE PRODUCT MED MALPRACTICE SEIZURE OF 28 USC 157 [ J 430 BANKS & BANKING
I J 140 NEGOTIABLE
LIABILITY I ]365 PERSONAL INJURY PROPERTY [ ) 450 COMMERCEncc
INSTRUMENT
( ]320 ASSAULT. LIBEL & PRODUCT LIABILITY 21 USC BB1 RATESIETC
( J 150 RECOVERY OF
SLANDER ( J 368 ASBESTOS PERSONAL [ ]630 LIQUOR LAWS PROPERTY RIGHTS [ ]460 DEPORTATION
[ J 330 FEDERAL INJURY PRODUCT [ J 640 RR& TRUCK I J 470 RACKETEER INFLU
OVERPAYMENT &
ENFORCEMENT OF
EMPLOYERS' LIABILITY I ]650 AIRUNEREGS ! J 820 COPYRIGHTS ENCED & CORRUPT
JUDGMENT
LIABILITY [ ]660 OCCUPATIONAL [ ]830 PATENT ORGANIZATION ACT
I J 151 MEDICARE ACT
I 1340 MARINE PERSONAL PROPERTY SAFETYIHEALTH ! J840 TRADEMARK (RICO)
I J345 MARINE PRODUCT [ J690 OTHER [ J 810 SELECTIVE SERVICE
I J 152 RECOVERY OF
DEFAULTED
LIABILITY [ J 370 OTHER FRAUD
1(1850 SECURITIES/
STUDENT LOANS
[ 1350 MOTOR VEHICLE [ J 371 TRUTH IN LENDING SOCIAL SECURITY
COMMODITIESI
(EXCL VETERANS) I 1355 MOTOR VEHICLE I ]3BO OTHER PERSONAL LABOR EXCHANGE
[ )153 RECOVERY OF
PRODUCT LIABILITY PROPERTY DAMAGE [ J 861 MIA (1395FF) [ J 875 CUSTOMER
OVERPAYMENT OF
I ]360 OTHER PERSONAL I J385 PROPERTY DAMAGE [ J 710 FAIR LABOR [ J 862 BLACK LUNG (923)
CHALLENGE
VETERAN'S BENEFITS INJURY PRODUCT LIABILITY STANDARDS ACT [ ]863 DIWC (405(g))
12 USC 3410
[ J 160 STOCKHOLDERS
1]720 LABOR/MGMT [ J 863 DIWW (405(g
[ J 891 AGRICULTURE ACTS
SUITS
RELATIONS [ J 664 SSID TITLE XVI I J 892 ECONOMIC
[ J 190 OTHER CONTRACT
1)730 LA"ORlMGMT I ) 865 RSI (405(g
STABILIZATION ACT
REFIORTING & I 1893 ENVIRONMENTAL
I J 195 CONTRACT PRODUCT
LIABILITY
DISCLOSURE ACT MATTERS
[ )740 RAILWAY LABOR ACT fEDERAL TAX SUITS I J 894 ENERGY
[ J790 OTHER LABOR ALLOCATION ACT
ACOONS UNDER STATUTES LITIGATION
I J 670 TAXES
I ]895 FREEDOM OF
1]791 [ J 671 IRS-THIRD PARTY EMPLRET INC INFORMATION ACT
REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS SECURITY ACT 20 USC 7509
I J 900 APPEAL OF FEE
DETERMINATION UNDER
EQUAL ACCESS TO
I J 210 LAND CONDEMNATION I J441 VOTING [ J 510 MOTIONS TO
JUSTICE
I J 220 FORECLOSURE I J442 EMPLOYMENT VACATE SENTENCE
( ]443 HOUSING 20 USC 2255
I J 950 CONSTITUTIONALITY OF
[ J 230 &
I ]530
STATE STATUTES
ACCOMMODATIONS HABEAS CORPUS
I ]444 WELFARE I ]535 DEATH PENALTY
I J890 OTHER STATUTORY
[ J 240 TORTS TO LAND
I J 246 TORT PRODUCT I )440 OTHER CIVIL RIGHTS []54O MANDAMUS & OTHER
ACTIONS
[]550 CIVIL RIGHTS
I J290 ALL OTHER
[]555 PRISON CONDITION
REAL PROPERTY
LIABILITY
Check if demanded in complaint:
CHECK IF THIS IS A CLASS ACTION DO YOU CLAIM THIS CASE IS RELATED TO A CIVIL CASE NOW PENDING IN S.D. N.Y.?
UNDER F.R.C.P. 23 IF SO, STATE:
DEMAND $,_____ OTHER _____ JUDGE Hon. Victor Marrero DOCKET NUMBER No 12-cv-0195
Check YES only if demanded in complaint
JURY DEMAND: RYES 0 NO NOTE: Please submit at the time of filing an explanation of why cases are deemed related.
(SEE REVERSE)
(PLACE AN x IN oNE BOX oMy)
ORIGIN
~ 1 Original o 2 Removed from 0 3 Remanded from 0 4 Reinstated or 0 5 Transferred from 0 6 Multidistrict o 7 Appeal to District
Proceeding State Court Appellate Court Reopened (Specify District) LHigation Judge from
Magistrate Judge
Judgment
(pLACEAN X IN ONE BOX oMY) BASIS OF JURISDICTION
IF DIVERSITY, INDICATE
o 1 U,S. PLAINTIFF 02 U,S. DEFENDANT Kl3 FEDERAL QUESTION 04 DIVERSITY CITIZENSHIP BELOW.
(U.S. NOT A PARTY) (28 USC 1322,1441)
CITIZENSHIP OF PRINCIPAL PARTIES (FOR DIVERSITY CASES ONLY)
(Place an [Xl in one box for Plaintiff and one box for Defendant)
CITIZEN OF THIS STATE
PTF
[ ]1
DEF
{ ]1 CITIZEN OR SUBJECT OF A
FOREIGN COUNTRY
PTF DEF
[ ]3 ( ]3 INCORPORATED and PRINCIPAL PLACE
OF BUSINESS IN ANOTHER STATE
PTF
{ ]5
DEF
[ ]5
CITIZEN OF ANOTHER STATE ( J 2 [ J 2 INCORPORATED or PRINCIPAL PLAC
OF BUSINESS INTHIS STATE
E [ ]4 ( ]4 FOREIGN NATION [ )6 { )6
PLAINTIFF(S) ADDRESS(ES) AND COUNTY(IES) (Calendar Rule 4(A
Thomas S. Wacker
600 6th Street
Brooklyn, NY 11215
DEFENDANT(S) ADDRESS(ES) AND COUNTY(IES) (Calendar Rule 4(A
Jon S. Corzine, 1500 Hudson Street, Apt 6H Hoboken NJ 07030; Bradley Abelow 49 Clinton Avenue, Montclair, NJ 07042
Laurie Ferber. 465 West End Ave. Pat 4A. New York. NY 10024; Dennis Klejna, 145 East 81st Street, Apt 3F, New York NY
10028; Edith O'Brien, 316 Highland Ave, Highwood, IL 60040; Christine Serwinski, 7430 McDowell Road, Presque Isle WI,
54557; Henri J. Steenkamp, 20 Newport Parkway, Apt 705, Jersey City, NJ 07310; Michael Stockman, 63 Carolyn Place.
Chappaqua, NY 10514; CME GROUP, Inc., 20 South Wacker Drive, Chicago, IL 60606; JP Morgan Chase & Co., 270 Park
Avenue, New York, NY 10017
DEFENDANT(S) ADDRESS UNKNOWN
REPRESENTATION IS HEREBY MADE THAT, AT THIS TIME, I HAVE BEEN UNABLE, WITH REASONABLE DILIGENCE, TO ASCERTAIN THE
RESIDENCE ADDRESSES OF THE FOLLOWING DEFENDANTS:
David P. Bolger; Michael Bolan; Eileen Fusco; David Gelber; Martin Glynn; Edward L. Goldberg; Stephen Hood;
Robert S. Sloan; David Schamis
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Check one: THIS ACTION SHOULD BE ASSIGNED TO: 0 WHITE PLAINS K1 FOLEY SQUARE
(DO NOT check either box if this a PRISONER PETITION.)
DATE
1/27/2012
RECEIPT#
ADMITIED TO PRACTICE IN THIS DISTRICT
[ 1 NO
OC' YES (DATE ADMITIED Mo. ~ Yr. 2012 )
Attorney Bar Code # 1988690
Magistrate Judge is to be designated by the Clerk of the Court.
Magistrate Judge _____________~ ___________ is so Designated.
James M. Parkison, Clerk of Court by Deputy Clerk, DATED
UNITED STATES DISTRICT COURT (NEW YORK SOUTHERN)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF NEW YORK
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THOMAS S. WACKER, individually and on
behalf of all others similarly situated,
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Plaintiff,
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v.
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JON S. CORZINE; BRADLEY ABELOW,
DAVID P. BOLGER, MICHAEL BOLAN,
LAURIE FERBER; EILEEN FUSCO, DAVID
GELBER, MARTIN GLYNN, EDWARD L.
GOLDBERG, STEPHEN HOOD, DENNIS
KLEJNA, EDITH O'BRIEN,
SERWINSKI, ROBERT S. SLOAN, DAVID
SCHAMIS, HENRI J. STEENKAMP, MICHAEL
STOCKMAN, CME GROUP, INC., JPMORGAN
CHASE & CO., AND JOHN DOES 1-10,
De endants.
STATEMENT OF RELATED CASE
This action arises out of the same transactions and events as Kay P. Tee LLC, et al. v.
Corzine et al., No 12-cv-0195-VM and Marcin v. Corzine et aI., 12-cv-0499 (the "Related
Actions"). This action and the Related Actions are against overlapping defendants, for the same
wrongs, and are all class actions.
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ADDENDUM TO CIVIL COVER SHEET
DEFENDANTS
JON S. CORZINE; BRADLEY ABELOW, DAVID P. BOLGER, MICHAEL BOLAN,
LAURIE FERBER; EILEEN FUSCO, DAVID GELBER, MARTIN GLYNN, EDWARD L.
GOLDBERG, STEPHEN HOOD, DENNIS KLEJNA, EDITH O'BRIEN, CHRISTINE
SERWINSKI, ROBERT S. SLOAN, DAVID SCHAMIS, HENRI J. STEENKAMP, MICHAEL
STOCKMAN, CME GROUP, INC., JPMORGAN CHASE & CO., AND JOHN DOES 1-10,
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
THOMAS S. WACKER, individually and on
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behalf of all others similarly situated,
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Plaintiff,
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v.
JON S. CORZINE; BRADLEY ABELOW,
DAVID P. BOLGER, MICHAEL BOLAN,
LAURIE FERBER; EILEEN FUSCO, DAVID
GELBER, MARTIN GLYNN, EDWARD L.
GOLDBERG, STEPHEN HOOD, DENNIS
KLEJNA, EDITH O'BRIEN, CHRISTINE
SERWINSKI, ROBERT S. SLOAN, DAVID
SCHAMIS, HENRI J. STEENKAMP, MICHAEL
STOCKMAN, CME GROUP, INC., JPMORGAN
CHASE & CO., AND JOHN DOES 1-10,
Defendants. :
12 elV 0705
Civ. Action No:
JURY TRIAL DEMANDED
CLASS ACTION COMPLAINT
1. Plaintiff Thomas S. Wacker ("Wacker" or Plaintiff) brings claims on behalf of
himself and other similarly situated MF Global, Inc. ("MFGI" or the "Company,,)l commodities
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account customers who lost money because MFGI failed to keep customer accounts segregated
from other Company assets as required by law. Instead, in an illegal attempt to stave off
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bankruptcy caused by their reckless proprietary trading strategy, officers and directors ofMFGI
caused MFGI to misappropriate client funds to pay Company obligations.
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2. On October 31, 2011, MFGI filed for bankruptcy due in large part to its failed
proprietary trades. Shortly after the bankruptcy filing, MFGI admitted that it had lost $1.2
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billion in client accounts.
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1 MFGI is the principal subsidiary ofMF Global Holdings Ltd. ("MF Global") that does business
with the public in the U.S.
3. Plaintiff, at all relevant times, was an independent commodities and futures trader.
Mr. Wacker was the owner of a segregated account at MFGI with approximately $4 million in
equity, which represented Mr. Wacker's trading capital, from which he earned his livelihood.
After MFGI filed bankruptcy, Mr. Wacker lost access to trading capital for over one week, and
thus, suffered damages from his inability to trade. Mr. Wacker, like all segregated account
holders, received in bankruptcy proceedings only a pro rata share of the customer segregated
funds that remained at MF Global. Thus, as of the present date, Mr. Wacker has received only
approximately 72% of his trading capital, and has lost 28% of that capital, an amount in excess
of$1 million. Aside from the direct loss of his funds, he has and continues to suffer substantial
damages from the loss of the trading capital from which he earns his living.
4. Plaintiff brings claims against (1) the following officers and directors ofMF
Global: Jon S. Corzine; Bradley Abelow, David P. Bolger, Michael Bolan, Laurie Ferber; Eileen
Fusco, David Gelber, Martin Glynn, Edward L. Goldberg, Stephen Hood, Dennis Klejna, Edith
O'Brien, Christine Serwinski, Robert S. Sloan, David Schamis, Henri J. Steenkamp, and Michael
Stockman ("Individual Defendants"); (2) JPMorgan Chase & Co. ("JPMC"), which knowingly
or recklessly received misappropriated client funds from MF Global; (3) CME Group, Inc.
("CME") for failing to diligently exercise its oversight duties to detect and deter the illegal
conduct described herein and (4) John Does Numbers 1 through 10. Plaintiff brings claims under
the Commodity Exchange Act (the "CEA"), 7 U.S.C. 1 et seq., New York General Business
Law ("GBL") 349, and the common law.
5. Plaintiff alleges the following upon personal knowledge as to their own acts, and
as to all other matters, upon information and belief:
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BACKGROUND
I. MFGI IS REQUIRED TO KEEP CUSTOMER ACCOUNTS SEGREGATED
6. The CEA, and the regulations promulgated thereunder, require Future
Commission Mer-chants ("FCMs"), which include all organizations licensed as brokers to trade
on a futures exchange, to segregate client funds. Regulations promulgated under the CEA state:
All customer funds shall be separately accounted for and segregated as belonging
to commodity or option customers. Such customer funds when deposited with any
bank, trust company, clearing organization or another futures commission
merchant shall be deposited under an account name which clearly identifies them
as such and shows that they are segregated as required by the Act and this part ...
No person, including any clearing organization or any depository, that has
received customer funds for deposit in a segregated account, as provided in this
section, may hold, dispose of, or use any such funds as belonging to any person
other than the option or commodity customers ofthe futures commission
merchant which deposited such funds.
17 C.F.R. 1.20.
7. At all relevant times herein, MFGI was an FCM with a duty to segregate customer
funds. Because customer accounts with FCMs are not insured, the segregation requirement plays
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a crucial role in ensuring that commodity brokerage customers do not lose money if their
brokerage goes bankrupt.
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8. Congress created the Commodity Futures Trading Commission ("CFTC") in 1974
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as an independent agency with the mandate to regulate commodity futures and option markets in
the United States. Congress provided for the registration and CFTC oversight of self-regulatory
associations of futures professionals. The futures industry created the National Futures
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I Association ("NF A"). The NF A performs several regulatory activities, including auditing and
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surveillance of members, enforcing rules for customer protection, providing an arbitration forum
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to resolve disputes, and screening to determine fitness to become or remain an NF A member.
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9. With limited exceptions, all persons and organization intending to do business as
future professionals must register under the CEA and apply for NFA membership. The NFA
requires daily and monthly reports detailing segregation of customer accounts. The NFA website
states,
An FCM that holds customer segregated funds and funds received from foreign
futures and options customers must file daily reports with NFA by noon of the
following business day. The FCM must inform NFA's Compliance Department
prior to accepting customer funds, and NFA will then set up a web-based
reporting system for that FCM.
In addition to filing daily reports, an FCM who holds customer segregated and/or
secured funds must file the Segregated Investment Detail Report (SIDR) on a
monthly basis as ofthe last business day of the month. The SIDR must be filed
with NFA by noon on the business day following the last business day of the
month via NFA's EasyFile system.
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10. Furthermore, CME was the designated "Self-regulatory Organization" ("DSRO")
for MFGI. As the DRSO, CME had the duty to audit and monitor MFGI on a regular basis.
11. Prior to the collapse ofMF Global, the rule that FCMs segregate customer funds
acted to safeguard client funds. As Terrence A. Duffy, Executive Chairman of CME stated in
testimony before the House Committee on Financial Services Subcommittee on Oversight &
Investigation on December 15,2011: "The MFG bankruptcy ... is the first time in the industry's
history that a customer has suffered a loss as a result of a clearing members' improper handling
of customer funds."
2 See http://www.nfa.futures.orginfa-faqs/compliance-faqs/financial
requirements/index.HTML#q8
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12. As set forth below, MFGI failed to maintain segregated accounts as its proprietary
trading strategy caused the Company to suffer devastating losses. Consequently, its commodity
trading customers lost a significant amount of money in their accounts.
II. MF GLOBAL TAKES ON GREATER RISK WITHOUT ADEQUATE
INTERNAL CONTROLS
13. Before March of 201 0 MF Global was a commodity-based broker-dealer that
provided client service-based programming but did not engage in substantial proprietary trading.
14. MF Global's Board of Directors, on March 23, 2010, appointed John Corzine
chairman and CEO of the company. Mr. Corzine, with the knowledge and approval of the Board
of Directors, took MF Global to a different and much higher-risk business model. He aspired to
transform the company into a full-service investment bank. Mr. Corzine, with the knowledge
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and approval ofMF Global's Board of Directors, replaced hundreds of client-based sales
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representatives with Wall Street-style traders.
15. Although Mr. Corzine began a business strategy of taking greater risks by
creating a trading culture and making bets on volatile and risky bonds, Mr. Corzine and MF
Global's Board of directors did not put into place corresponding risk management controls,
systems, personnel, and processes.
16. Wall Street firms - such as Mr. Corzine's former employer Goldman Sachs - that
make trades of the size and risk profile that Mr. Corzine was making, have large risk
management and back office infrastructure to model, identify, and control risks. A properly run
investment bank, ofthe type that Corzine and MF Global's board wanted to become, have risk
control officers, and committees with sufficient internal power to control proprietary trades. MF
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Global had no such structure and did not have adequate risk controls commensurate to the
business model it was using.
17. Shortly after becoming CEO, Mr. Corzine initiated large proprietary trades on the
bonds of the economically and financially distressed European countries of Italy, Spain,
Portugal, Ireland, and Belgium.
18. Despite the lack of meaningful internal controls necessary to make large,
proprietary trading risks, Mr. Corzine increased MF Global's trades on the distressed European
country bonds from $1.5 billion in late 2010 to $6.3 billion in October of 2011.
19. By September 2010, MF Global's chief risk officer warned the MF Global Board
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of Directors and management that the company's European bond positions were excessively
risky. She told them that the positions could endanger MF Global if financial turbulence in
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Europe became too volatile.
20. Corzine and MF Global's Board of Directors disregarded and ignored these
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warnings. Corzine informed the board that, in his opinion, MF Global's exposure was limited
and that the likely profit was worth the risk. The Board of Directors accepted the opinion of
Corzine and disregarded the scenarios presented by its chief risk officer.
21. In the summer and fall of 2010 the European bond bets went negative, increasing
the risk of the trade and the margin required to support the trade. On at least three occasions, the
size of the bond trades violated MF Global's preset trading limits, raising a red flag that the trade
held excessive risk.
22. On each of those three occasions, MF Global's Board of Directors explicitly
approved the trades, disregarding the Company's risk management policies, and, after
questioning the chief risk officer, knowingly allowed the trade to continue.
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23. On each of the occasions when the Board of Directors approved MF Global's
trades that were outside preset trading limits, the chief risk officer outlined the scenarios to
support his opinion that the trades were excessively risky. In reckless disregard of these
warnings, in January 2011, Corzine and the board fired the chief risk officer.
24. The warnings of the Chief Risk Officer proved correct. The large and reckless
bond bets that Corzine and the Individual Defendants stood to profit from went bad, MF Global's
credit rating was downgraded, its stock plunged, and in the course of trying to stave off
bankruptcy or to sell the company, the individual defendants illegally raided segregated funds.
At the time that it filed bankruptcy MF Global admitted that it could not account for and had lost
$600 million of customer funds. The amount of lost funds was later estimated by the MF
Global's Bankruptcy Trustee to amount to approximately $ 1.2 billion.
JURISDICTION AND VENUE
25. Jurisdiction is proper in this Court pursuant to 28 U.S.C. 1331. This Court also
has federal subject matter jurisdiction pursuant to 28 U.S.C. 1332(d) because members of the
class of plaintiffs are citizens of a state different from a defendant and the matter in controversy
exceeds the sum or value of $5,000,000.
26. Venue is proper in this Court pursuant to 28 U.S.C. 1391 (b) because
Defendants' unlawful course of conduct occurred primarily in this District.
THE PARTIES
27. Plaintiff Thomas S. Wacker ("Wacker") resides in the state of New York.
Plaintiff Wacker was a commodity account customer ofMFGI when the Company declared
bankruptcy. He has failed to recover a significant portion of money that he entrusted MFGI to
hold in his brokerage account.
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28. Defendant Jon S. Corzine ("Corzine"), was at all times relevant a director and
Chief Executive Officer of MF Global.
29. Defendant Bradley I. Abelow ("Abelow") was at all times relevant the Chairman
and Chief Executive Officer ofMF Global.
30. Defendant David P. Bolger ("Bolger") was at all times relevant a director ofMF
Global.
31. Defendant Michael Bolan ("Bolan") was at all times relevant the Assistant
Controller MFGL
32. Defendant Laurie Ferber ("Ferber") was at all times relevant the in-house General
Counsel for MF Global.
33. Defendant Eileen Fusco ("Fusco") was at all relevant times a director of MF
Global and chaired its Audit and Risk Committee.
34. Defendant David Gelber ("Gelber") was at all times relevant a director of MF
Global.
35. Defendant Martin Glynn ("Glynn") was at all times relevant was a director of MF
Global.
36. Defendant Edward L. Goldberg ("Goldberg") was at all times relevant was a
director of MF Global.
37. Defendant Stephen Hood ("Hood") was at all times relevant the Market Risk
Manager for MFGL
38. Defendant Dennis Klejna ("Klejna") was at all times relevant the Compliance
Officer and Assistant General Counsel for MFGI.
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39. Defendant Edith O'Brien ("O'Brien") was at all times relevant the Treasurer for
MFGI.
40. Defendant Christine Serwinski ("Serwinski") was at all times relevant the Chief
Financial Officer for MFGI.
41. Defendant Robert S. Sloan ("Sloan") was at all times relevant a director ofMF
Global.
42. Defendant David Schamis ("Schamis") was at all times relevant a director of MF
Global and a member of its Audit and Risk Committee.
43. Defendant Henri J. Steenkamp ("Steenkamp") was at all times relevant the Chief
Financial Officer and Principal Accounting Officer ofMF Global.
44. Defendant Michael Stcokman ("Stockman") was at all times relevant the Chief
Risk Officer of MF Global and a director of MF Global.
45. Defendant CME Group, Inc. ("CME") is Defendant CME Group Inc. is a
corporation formed under the laws of the State of Delaware with its principal place of business at
20 South Wacker Drive, Chicago, Illinois.
46. Defendant JP Morgan Chase & Co. ("JPMC") is a corporation organized and
existing under the law of the State of Delaware doing business within the State of New York and
with an office within the City ofNew York, and the County of New York.
FURTHER SUBSTANTIVE ALLEGATIONS
I. MFGI MISAPPROPRIATES CLIENT FUNDS
47. In October of2011, the European bond market began showing signs of distress
and market participants began to recognize that MF Global's proprietary trading strategy was
reckless and doomed the company to failure. The Defendants' illegal and fraudulent response to
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these events have been described and attested to in sworn statements and testimony in: (a)
Chronology dated Dec. 13,2011 prepared by CME and submitted to Hon. Randy Neugebauer,
Chairman, Subcommittee on Oversight and Investigations, US House of Representatives (the
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"CME Chronology"); (b) Testimony of Terrance A. Duffy, Executive Chairman, CME Group
Inc., Before the Senate Committee on Financial Services, December 15, 2011 (the "Duffy
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Testimony"); (c) Statement and Testimony of Bradley Abelow before the United States House of
Representatives Committee on Agriculture, Nutrition & Forestry dated December 13,2011 (the
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"Abelow Testimony"); and (d) Statement and Testimony of Jon S. Corzine before the United
I States House of Representatives Committee on Agriculture, Nutrition & Forestry dated
f December 13,2011 (the "Corzine Testimony").
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48. By late October 2011, rating agencies rapidly and repeatedly downgraded MF
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Global's credit rating as a result of its exposure to foreign debt. At the same time, MF Global
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reported disappointing quarterly earnings.
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49. The Abelow Testimony characterized the market response to the late October
2011 events as a "classic run on the bank" wherein a "large number of the firm's trading and
financing counterparts" pulled away from MF Global, which "dramatically reduced the firm's
liquidity."
50. CME and other regulatory agencies, concerned over market response to these
events, began an audit ofMF Global's and MFGI's segregated customer accounts in or around
October 26. CME was unable to verify that customer accounts were segregated because MF
Global did not hand over needed information corroborating account statements. However, at this
time, CME did not suspend the privileges of MF Global to prevent further misappropriation of
customer accounts as it was empowered to do so under its Rule 974, which allows suspension of
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a member that "fails to meet the minimum financial requirements as prescribed herein or
neglects to promptly furnish a statement upon request."
51. As the events were unfolding, Defendants herein misrepresented to CME that MF
Global and MFGI were stable. The CME Chronology reported that Defendant Bolan represented
to CME that MF Global was well capitalized and that MFGI had not seen customers looking to
transfer funds. Defendants Ferber and Skeenkamp also represented to CME that MFGI had
appropriate liquidity.
52. In reality, by the end of October, to conceal the dire circumstances at MF Global,
the Individual Defendants caused the Company to use customer funds to meet margin calls to
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cover MF Global's losses due to its proprietary trading. Nevertheless, MFGI's Daily Statement
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of Segregation Requirement and Funds in Segregation for Customer Trading on U.S. Commodity
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Exchanges (the "Segregation Report") for the close of business October 27 showed an excess of
$200,178,912.
53. Yet, Defendants could not hide the fact that MF Global illegally tapped into
customer accounts for long. A revised Segregation Report for October 27 released on October
31 - disclosed that there was a deficiency of $213,062,967.00 in MFGI's segregated funds on
October 27.
54. On October 30, Duffy learned from the CFTC that its staff had learned of a draft
segregation report that indicated a $900 million shortfall in customer segregated funds. The
Individual Defendants, still trying to conceal their fraud, attempted to convince the auditors from
the CFTC and CME that the shortfall was merely an "accounting error." This was false.
55. At about 2 a.m. on the morning of October 31, MF Global informed the CFTC
and the CME that the shortfall was real and that MF Global employees had transferred customer
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segregated funds out of segregated accounts into MF Global's broker dealer accounts, where
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they could be used to satisfy margin calls.
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56. In contradiction of Corzine's sworn testimony before two congressional
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committees at that time, Duffy testified that "a CME auditor also participated in a phone call
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with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about
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the loans made from the segregated accounts."
57. "Throughout this time the firm, and its employees were under the direction and
control ofMF Global management. Transfers of customer funds effectuated by MF Global for
the benefit (of the firm) constitute very serious violations of our rules and of CFTC regulations,"
testified Duffy.
58. Both Mr. Corzine and Mr. Abelow made evasive responses to questions by
Senators on the Agriculture Committee about the transfers of segregated funds. Mr. Corzine
repeatedly claimed that he was unaware of the "misuse" of customer funds, an evasion that
suggests he was aware of the MF Global's transfers of segregated funds, but now intends to
claim he did not understand that the transfers were illegal.
59. Abelow claimed "I do not recall being made aware of our running out of cash...
and being unable to meet obligations."
60. Both Corzine and Abelow's denials and evasions are not credible because they
requested and received a plan that provided for a contingency in which segregated customer
funds would be illegally used by MF Global. Senator Roberts asked the question: "In fact, didn't
MF global leadership go so far as to request and receive an actual plan that would "break the
glass" and tap into your customer segregated accounts?" Corzine admitted that there was such
a report.
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61. Senator Roberts suggested a plausible strong inference to be drawn both from the
hard facts presented, as well as from the evasive testimony from Corzine and Abelow: "By all
accounts, on the Friday before bankruptcy, MF Global thought it had found a buyer to save (the
firm). It now seems well within the realm of possibility that a classic run on the bank
overwhelmed (the firm's) cash flow. And an executive could have communicated, somehow, an
order to use your customer segregated funds to cover the firm's liquidity, thinking, of course,
everything would be fine by Monday morning. The company would be bought out and an
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infusion of money from the new owner could replace the missing funds. Is that plausible?"
62. Corzine, who was present at MF Global during this time and who had access to all
information and facts needed to answer the Senator's question declined to answer.
63. The Senators on the Committee also found it completely implausible that any
employee would make use of as much as $1.2 billion of segregated funds, with the CEO and
COO and CFO all present and engaged without seeking direct authorization from at least one of
these officers.
64. The fallout of Defendants' willful actions have had a disruptive and detrimental
impact on the public trust in the commodities futures market, and upon information and belief,
the collapse of MF Global and the Defendants' unprecedented violation of the most sacrosanct
and fundamental tenet of the marketplace to not use segregated customer accounts for MF
Global's own purposes dismayed counterparties who regularly leave millions of dollars in broker
accounts and diminished confidence in the commodity futures market as smaller-scale traders
who were MF Global's core customers may have been effectively frozen out of the markets.
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II. JPMC RECIEVES MISAPPRIATED CLIENT FUNDS
65. According to news reports, Defendant O'Brien transferred $200 million from
customer accounts to JPMC on October 28,2011, one day before the Company filed for
bankruptcy, to pay offMFGI's debts.
66. JPMC officials, suspicious that the money it received to clean up the overdraft
was from customer segregated accounts, requested from MF Global a guarantee in writing that
the funds were not misappropriated from clients.
67. It is clear from JP Morgan's request for assurances that the Bank was suspicious,
at the least, that funds it was receiving were customer segregated funds that it was not legally
entitled to. The refusal of MF Global to provide the requested assurance should have confirmed
the suspicions of any reasonable person.
68. But instead of declining to accept the funds after the assurance was refused, JP
Morgan accepted the funds, recklessly disregarding the evidence that they were customer
segregated funds that MF Global was illegally using. Any doubt that JP Morgan received
illegally-converted funds was removed when MF Global announced its initial estimate of a $600
million shortfall at the time it filed bankruptcy. Yet, JP Morgan did not return the funds, and
continues to hold the funds, despite knowing their source was illegally-converted customer
segregated funds.
CLASS ALLEGATIONS
69. Plaintiff brings this action on his own behalf and as a class action pursuant to
Rule 23 on behalf of himself and commodity account customers of MF Global were harmed by
Defendants' actions described herein ("Class"). Excluded from the Class are Defendants herein
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and any person, firm, trust, corporation or other entity related to or affiliated with any of the
Defendants.
70. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is impracticable.
Because MF Global failed segregate to segregate customer accounts,
approximately 38,000 lost a significant portion of their accounts when MF
Global imploded.
b. There are questions of law and fact which are common to the Class,
including the following:
i) Whether MFGI failed to segregate customer accounts from its
own funds;
ii) The amount of customer funds that were lost as a result of
MFGI's failure to segregate customer funds;
iii) Whether MFGI improperly diverted customer funds;
iv) Whether Defendants violated the CEA;
v) Whether JPMC had knowledge that it was in receipt of cash
belonging to MFGI's customers; and
vi) How MFGI used money belonging to its customers.
c. Plaintiff is an adequate representative of the Class, has retained competent
counsel experienced in litigation of this nature and will fairly and
adequately protect the interests of the Class.
d. Plaintiffs claims are typical of the claims ofthe other members of the
Class and Plaintiff does not have any interests adverse to the Class.
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e. The prosecution of separate actions by individual members of the Class
would create a risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible
standards of conduct for the party opposing the Class.
f. Defendants have acted on grounds generally applicable to the Class with
respect to the matters complained of herein, thereby making appropriate
the relief sought herein with respect to the Class as a whole.
COUNT I
Violation of 7 U.S.c. 6b(a)(2)(A), (B) and (C)
(Fraud in Connection with Commodity Futures Contracts)
(Against the Individual Defendants)
71. Plaintiff incorporates and re-alleges each of the previous allegations as though
fully set forth herein.
72. 7 U.S.c. 6b(a)(2) makes it unlawful:
[F]or any person, in or in connection with any order to make, or the making of,
any contract of sale of any commodity for future delivery, or other agreement,
contract, or transaction subject to paragraphs (1) and (2) of section 7a (g) of this
title, that is made, or to be made, for or on behalf of, or with, any other person,
other than on or subject to the rules of a designated contract market -- (A) to cheat
or defraud or attempt to cheat or defraud the other person; (B) willfully to make
or cause to be made to the other person any false report or statement or willfully
to enter or cause to be entered for the other person any false record; (C) willfully
to deceive or attempt to deceive the other person by any means whatsoever in
regard to any order or contract or the disposition or execution of any order or
contract, or in regard to any act of agency performed, with respect to any order or
contract for or, in the case of paragraph (2), with the other person ....
73. Each of the Individual Defendants, individually and/or in concert, in or in
connection with commodity futures contracts made, or to be made, for or on behalf of other
persons, cheated or defrauded, or attempted to cheat or defraud, customers and willfully deceived
or attempted to deceive customers by, among other things, knowingly making transfers of
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customer segregated funds in a manner designed to avoid detection, improperly diverting
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customers' cash and commingling it with MF Global's and/or MFGI's own funds, willfully
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making or causing to be made false reports or statements or willfully entering or causing to be
entered false records, and converting customers funds for its own use in violation of7 U.S.C.
6b(a)(2)(A), (B), and (C).
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74. Each ofthe Individual Defendants was a senior officer or Board Member and
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controlling person of MF Global and/or MFGI and had direct involvement in its operations.
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75. The Individual Defendants had actual knowledge of the facts herein or acted with
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reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even
though they were readily available to them. Defendants' acts were done knowingly or recklessly
and for the purpose and effect of concealing MF Global's and/or MFGI's financial condition
from its customers.
76. As a direct and proximate result of the wrongful conduct of the Individual
Defendants, Plaintiffs and the other proposed Class members suffered substantial damages.
COUNT II
Violation of 7 U.S.C. 6d
(Failure to Separately Maintain Customer Accounts)
(Against the Individual Defendants)
77.
78. Plaintiff incorporates and re-alleges each of the previous allegations as though
fully set forth herein.
79. Section 6d provides that one customer's funds shall not be used to margin or
guarantee the trades or extend the credit of any other customer or person.
80. Each of the Individual Defendants, individually and/or in concert, failed to
separately maintain and account for customer funds in violation of Section 6d.
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81. Each of the Individual Defendants was a top officer, Board Member or controlling
person ofMF Global and/or MFGI and had direct involvement in its operations.
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82. Individual Defendants had actual knowledge ofthe facts alleged herein or acted
with reckless disregard for the truth in that they failed to ascertain and to disclose such facts,
even though such facts were readily available to them. Defendants' acts were done knowingly or
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recklessly and for the purpose and effect of concealing MF Global's and/or MFGI's financial
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condition from its customers.
j 83. As a direct and proximate result of the wrongful conduct of the Individual
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Defendants, Plaintiffs and the other proposed Class members suffered substantial damages.
COUNT III
Violation of 7 U.S.c. 2S(a)(1)
(Aiding and Abetting Fraud)
(Against Individual Defendants and JPMC)
84. Plaintiff incorporates and re-alleges each of the previous allegations as though
fully set forth herein.
85. In misappropriating the accounts of Plaintiff and members of the Class the
Individual Defendants and JPMC willfully aided and abetted MF Global's and/or MFGI's
violations of Section 25(a)(1) of the CEA provides in relevant part:
(1) Any person (other than a registered entity or registered futures
association) who violates this Act [7 USCS 1 et seq.] or who willfully
aids, abets, counsels, commands, induces, or procures the commission of
the Act [7 USCS 1 et seq.] shall be liable for actual damages shall be
liable for actual damages resulting from one or more of the transactions
referred to in subparagraphs (A) through (D) of this paragraph and caused
by such violation to any other person
* * * * *
(B) who made through such person any contract of sale of any commodity
for future delivery (or option on such contract or any commodity); or who
deposited with or paid to such person money, securities, or property (or
incurred debt in lieu thereof) in connection with any order to make such
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contract.
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86. The Defendants arranged for and executed the movement of assets belonging to
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Plaintiff and the Class to unprotected accounts at JPMC and other financial institutions.
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87. The commingling of these assets was to be for MFGH's andlor MFGI's business
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operations including the reduction of their exposure to loans from JPMC.
88. JPMC, as a custodian of MF Global's and/or MFGI's assets and their creditor,
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along with the Defendants were each in the capacity and position to authorize, approve, endorse
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or monitor the transfer of Plaintiffs and the Class members' assets.
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89. JPMC and the Individual Defendants knew that these customer funds were taken
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in violation of the Act and that they were never likely to be returned.
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90. The MF Global MFGI violated segregation and customer-funds maintenance
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requirements by failing to treat all money and property received by it pursuant to the contracts of
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its customers or accruing to its customers as belonging to such customers; and failing to
segregate and separately account for and not commingle its customer funds with other funds.
91. The Individual Defendants and JPMC willfully aided and abetted such violations
of the Act by knowingly and intentionally failing to implement andlor enforce policies and
procedures that would insure the segregation of customer accounts and allowing such segregated
accounts to be used for customers or persons other than the customers for whom the property
was held.
92. As a result of the foregoing, the Individual Defendants and JPMC, jointly and
severally, are liable to the Plaintiff and the Class for violations of the Act and for actual damages
resulting there from.
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COUNT IV
Breach of Fiduciary Duty
(Against the Individual Defendants)
93. Plaintiff incorporates and re-alleges each of their previous allegations as though
fully set forth herein.
94. Each of the Individual Defendants exercised the power to direct the use of
commodity customers' money, securities, or other property which had been deposited with and
entrusted to MF Global and/or MFGI to allow such customers to trade commodity futures
contracts through MF Global and/or MFGI.
95. As senior officer and/or directors ofMFGH and/or MFGI, each of the Individual
Defendants promised the firm's customers that they would preserve the safety and security of the
property of Plaintiff and members of the proposed Class by adopting and adhering to internal
safeguard policies designed to ensure the preservation of customer property. As senior officer
and/or directors ofMF Global and/or MFGI, each of the Individual Defendants also promised
that in order to ensure the integrity of its customers' funds, they would follow stringent rules to
separate its customers' assets from those used to fulfill MF Global and/or MFGI's own
obligations and liabilities, and would hold its commodity customers assets in a separate account
that would be legally and physically distinct from MF Global and/or MFGI's own accounts and
subject to rigorous accounting processes as well as regulatory reporting and aUditing.
96. As such, the Individual Defendants and MFGH and/or MFGI owed MFGH and/or
MFGI's commodity customers, including Plaintiffs and the members of the class, a fiduciary
duty to preserve and protect their assets, to act solely in their customer's best interests in
connection with its custody and control of their assets, and to avoid any self-dealing.
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97. The Individual Defendants and MFGH and/or MFGI knowingly breached their
fiduciary duties to Plaintiffs and the members ofthe class by, among other things: a. failing to
preserve the safety and security of their assets; b. failing to adopt and adhere to internal
safeguard policies designed to preserve their property; c. commingling customer assets with
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those used to fulfill MFGH and/or MFGI's own obligations and liabilities; d. failing to maintain
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the customer assets in separates account that were legally and physically distinct from MFGH
and/or MFGI's own accounts; e. failing to subject its segregated customer funds account to
rigorous accounting processes which would insure the integrity of the funds in such account; and
f. allowing Plaintiffs' and class members' money and property to be used for improper and
illegal purposes.
98. As the direct and proximate consequence of the conduct of the Individual
Defendants Plaintiffs and the members of the proposed Class have lost a substantial portion of
the money, securities, or other property they deposited with MFGH and/or MFGI to trade
commodity futures contracts, have been denied the use of their property, and have been
substantially damaged as a result.
COUNT V
Aiding and Abetting Breach of Fiduciary Duty
(Against the Individual Defendants, CME and JPMC)
99. Plaintiff incorporates and re-alleges each of their previous allegations as though
fully set forth herein.
100. The Individual Defendants owed Plaintiffs and other class members fiduciary
duties by virtue of: a. special contractual obligations to maintain Plaintiffs' and other class
members' funds in a segregated account; b. statutory obligations to Plaintiffs and other class
members under the CEA and rules promulgated by the CFTC; c. a relationship of trust and
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confidence with Plaintiffs and other class members as a custodian, merchant, and broker
operating on the Chicago Mercantile Exchange.
101. As alleged in greater detail above, the Individual Defendants breached their
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fiduciary duty to Plaintiffs and class members by, among other things: a. causing, authorizing or
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allowing the movement of Plaintiffs and class members' segregated customer account funds to
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unprotected accounts at JPMC and other locations; b. concealing the movement of Plaintiffs' and
class members' funds to JPMC and other locations, and authorizing or allowing the
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~ dissemination of misleading segregation reports; c. failing to ensure that Plaintiffs' and class
members' funds were maintained in customer-segregated accounts; d. exposing Plaintiffs' and
class members' segregated accounts to total or substantial loss in the event of a MFGH andlor
MFGI bankruptcy; and e. self-dealing and causing MFGH and/or MFGI to pay off their debts
and financial obligations by using Plaintiffs and class members' segregated funds.
102. Individual Defendants, CME and JPMC aided and abetted these breaches of
fiduciary duty by active participation, substantial assistance, encouragement, andlor ratification
of the breaches, and did so to further their own respective interests, which were to the detriment
of Plaintiff and the Class.
103. With regard to JPMC, it was aware of and understood that the movement of
Plaintiffs and class members' funds to non-segregated accounts at JPMC constituted a breach of
MF Global's andlor MFGI's fiduciary duties. JPMC was aware of, or should have been aware of,
the unusual activity and depletion of segregated customer accounts. JPMC substantially assisted
MF Global and MFGI in breaching its fiduciary duties to Plaintiff and the Class by arranging and
participating in the movement of Plaintiffs and the class members' assets to unprotected
accounts at JPMC as well as other financial institutions. The commingling of Plaintiffs and
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other class members' assets was known to be for noncustomer purposes and instead for MFGH's
and/or MFGI's general business operations, including the reduction ofMFGH's exposure to
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loans from JPMC, and the satisfaction of margin calls by JPMC for repos and other trades.
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104. Each Individual Defendant affirmatively aided and abetted or conspired in the
breaches of fiduciary duty by one another, and each are therefore liable for the damages thereto.
The breaches of fiduciary duty by Defendants were the direct and proximate cause of the
damages suffered by Plaintiffs and the class members, in an amount to be proven at trial.
105. Defendant CME was responsible for ensuring that MFGI and the Individual
Defendants complied with MFGI's internal policies and maintained segregated accounts.
Defendant CME aided and abetted the Individual Defendants' breach of fiduciary duty by failing
to take steps to stop MFGI from using customer accounts to settle Company debts when it
recognized that MFGI could not provide information supporting its claim that customer accounts
were segregated.
COUNT VI
Unjust Enrichment
(Against JPMC )
106. Plaintiff incorporates and re-alleges each of their previous allegations as though
fully set forth herein.
107. On or about October 28,2011, one or more of the Defendants to this action or
other persons whose identities are presently unknown, wrongfully caused approximately $200
million in segregated cash (and/or assets) that lawfully belongs to Plaintiff and/or members of
the proposed Class to be transferred to Defendant JPMC.
108. By reason of the transfer on October 28, 2011 and/or the receipt by JPMC of other
amounts not yet ascertained at some other time relevant to the allegations in this complaint that
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lawfully belongs to Plaintiff and/or members of the proposed Class, JPMC has received a
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significant pecuniary benefit at the expense of Plaintiff and members of the proposed Class.
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109. JPMC has been unjustly enriched by the receipt of approximately $200 million in
cash (and/or assets) and/or other amounts not yet ascertained that lawfully belongs to Plaintiffs
and/or members ofthe proposed Class.
110. One or more of the Defendants to this action or other persons whose identities are
presently unknown, delivered to JPMC cash (and/or assets) that lawfully belongs to Plaintiffs
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and/or members of the proposed Class, and consequently, JPMC has a lawful or equitable duty to
return such funds.
Ill. JPMC has a lawful and/or equitable duty to return to Plaintiff and members of the
proposed Class the $200 million constituting the transfer on October 28, 2011 and/or any other
amounts not yet ascertained that lawfully belongs to Plaintiff and/or members of the proposed
Class.
112. JPMC has failed and refused to return to Plaintiffs and members of the proposed
Class the cash (and/or assets) that lawfully belongs to them.
113. It is unlawful and against equity and good conscience to pennit JPMC to retain
the $200 million in cash (and/or assets) and/or other amounts not yet ascertained that lawfully
belongs to Plaintiffs and/or members of the proposed Class.
114. As a direct and proximate result of the actions of JPMC, one or more of the
Defendants to this action or other persons whose identities are presently unknown, Plaintiff and
members of the proposed Class have suffered actual and substantial damages in an amount to be
detennined at trial.
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115. Plaintiffs demand the return of all cash (and/or assets) received by JPMC that
lawfully belongs to Plaintiffs and members of the proposed Class.
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COUNT VII
Theft, Conversion and Misappropriation
(Against the Individual Defendants)
116. Plaintiff incorporates and re-alleges each of their previous allegations as though
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fully set forth herein.
117. Plaintiff and the Class had the right to possess their accounts held by MF Global
1
and/or MFGI and the funds in them.
118. Defendants jointly and severally interfered intentionally with Plaintiffs and the
Class's possession of their accounts with the MF Global and/or MFGI and the funds in them.
119. Defendants' interference deprived Plaintiff and the Class of possession and/or use
of their accounts and the funds in them.
120. Defendants' interference caused substantial damage to Plaintiff and members of
the proposed Class.
121. Defendants, jointly and severally, stole, converted, and/or misappropriated
portions of Plaintiffs accounts and those of members of the proposed Class, including their cash
as alleged causing losses and damages to Plaintiff and members of the Class.
122. Defendants' misconduct has also caused a disruptive and detrimental impact on
the public trust in the commodities futures market, and the Defendants' unprecedented violation
of the most sacrosanct and fundamental tenet of the marketplace to not use segregated customer
accounts for its own purposes has dismayed counterparties and diminished confidence in the
commodity futures market. Defendants' are morally culpable for its outrageous conduct in
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violation of the public trust that has aroused the ethical indignation of the community. Punitive
damages are necessary and appropriate to deter such future misconduct.
COUNT VIII
Interference with Contract Rights
(Against Individual Defendants and JPMC)
123. Plaintiff incorporates and re-alleges each of their previous allegations as though
fully set forth herein.
124. Plaintiff and the Class deposited money in their accounts pursuant to a written
agreement to secure, margin and/or guarantee trades and/or contract of Plaintiffs and the Class.
Plaintiffs and the Class had contract rights with MF Global and lor MFGI stemming from the Act
and industry regulations that MF Global and MFGII would treat and deal with the money in the
accounts of Plaintiff and the members ofthe Class as belonging to Plaintiff and the members of
the Class respectively. Plaintiffs and the Class had contract rights that the money in their
accounts would be separately accounted for and not commingled with or be used to margin or
guarantee the trades or contracts of or to secure or extend the credit of any person other than
Plaintiffs and members of the Class.
125. he Individual Defendants and JPMC were each aware of contractual agreements
that Plaintiff and the Class had with MF Global and/or MFGI to manage their accounts and
JPMC intentionally interfered with the performance of the contract by, among other things,
causing the contract to be breached by allowing segregated funds to be improperly employed,
allowing Plaintiff's and the Class' money to be commingled, and concealing these facts from
Plaintiff.
126. The Individual Defendants and JPMC intentionally interfered with the
performance of each contract by causing the movement of funds from protected accounts to
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I unprotected, non-segregated accounts at JPMC. Such intentional interference with the
contractual relationships of MF Global and/or MFGI with Plaintiffs and class members was
without justification or excuse.
127. Individual Defendants and JPMC, jointly and severally, intentionally interfered
with Plaintiffs and the Class's contract rights, directly and proximately causing damage to
Plaintiff and the Class.
128. Individual Defendants and JPMC's conscious and deliberate reckless misconduct
has also caused a disruptive and detrimental impact on the public trust in the commodities
futures market, and their actions have dismayed counterparties and diminished confidence in the
commodity futures market. Defendants' have grossly misbehaved and are morally culpable for
violating the public trust and arousing the ethical indignation of the community, and punitive
damages are necessary and appropriate to deter such future misconduct.
COUNT IX
Violation of G.B.L. 349
(Against Individual Defendants)
129. Plaintiff incorporates and re-alleges each of their previous allegations as though
fully set forth herein.
130. Individual Defendants engaged in deceptive acts or practices in the conduct of
business, trade and/or commerce and/or in the furnishing of a service the State of New York,
willfully and/or knowingly violating Section 349 of the New York General Business Law.
Plaintiff and members of the Class were consumers of services provided by the Defendants
including, but not limited to, the maintenance of commodities accounts, segregating client funds,
and executing futures transactions.
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.
131. Individual Defendants' misconduct has substantially diminished the marketplace
for futures and commodities in the United States and throughout the world, constituting a public
wrong with broad impact on consumers at large. Defendants' misconduct is outrageous, a
conscious and deliberate disregard of Plaintiffs' rights, a conscious and deliberate disregard of
the rights of customers with cash and/or other items of value on deposit in their accounts and a
fraud on the public generally.
132. Plaintiffs have been injured by reason of the violation of Section 349 and are
entitled to recover their actual damages plus reasonable attorneys' fees.
COUNT X
Negligence
(Against Individual Defendants and JPMC)
133. Plaintiff incorporates and re-alleges each of his previous allegations as though
fully set forth herein.
134. Each Individual Defendant, jointly and severally, had a legal duty to exercise
reasonable care to preserve, protect, safeguard, segregate and secure the property of Plaintiff as
well as that ofthe members of the proposed Class.
135. The legal duty to exercise reasonable care in preserving the Segregated Accounts
is the foundation principle that permeates the interaction among all Defendants, even as
counterparties and Individual Defendants and JPMC had a mandate to exercise such care within
a framework of internal and external policies and regulations to ensure that the customer
accounts remain segregated and preserved for the customer.
136. Yet, the Individual Defendants and JPMC failed to exercise reasonable care to
protect and preserve the accounts of Plaintiff and the Class in that adequate risk-management
policies were not established; accounting systems were not applied with precision; and monies
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from the segregated accounts were transferred and received within the context of such lax and
failed systems that Plaintiff and the Class were damaged thereby.
137. As a result, the segregated accounts of plaintiff and those of the members of the
Class were violated and dissipated and diminished and the plaintiff and the members of the Class
are thereby damaged in an amount to be determined.
138. Individual Defendants and JPMC's failure to exercise reasonable care with
respect to the segregated accounts is the proximate cause of the damages suffered by Plaintiff
and the Class in an amount to be determined by trial.
COUNT XI
Gross Negligence
(Against Individual Defendants and JPMC)
139. Plaintiff incorporates and re-alleges each of his previous allegations as though
fully set forth herein.
140. Individual Defendants and JPMC, jointly and severally, had a legal duty to
exercise reasonable care to preserve, protect, safeguard, segregate and secure the property of
Plaintiff and the Class.
141. However, the failure of such duty cannot all be attributed to inadvertence. Indeed,
each Defendant demonstrated reckless disregard for the safekeeping of the property of Plaintiff
and the Class.
142. The Individual Defendants made conscious decisions to stymie if not repeatedly
outright disregard its internal risk-management systems.
143. Individual Defendants transferred funds out of the segregated accounts that were
received by JPMC all amidst "see-no-evil" protocols.
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144. Such disregard by the Defendants for the preservation of the Segregated accounts
amounts to a conscious violation of Plaintiffs and the Class' rights to their property and is the
proximate cause of the loss of such property.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment:
(a) ordering that this action proceed as a class action as to all claims alleged herein;
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(b) awarding compensatory damages, including prejudgment interest, on each claim
in an amount to be established by trial;
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(c) awarding punitive damages;
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(d) awarding attorney fees;
(e) imposing a constructive trust on the ill-gotten gains of JPMC; and
(f) Granting such other relief as this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintffhereby demands a trial by jury.
Dated: January 27, 2012,
Respectfully submitted,
~ ~ ~ ~
Keith M. Fleischman
FLEISCHMAN LAW FIRM
565 Fifth Avenue, Seventh Floor
New York, NY 10017
Tel: (212) 880-9567
Fax: (917) 591-5245
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Francis P. Karam Esq. (8288)
LAW OFFICE OF FRANCIS P. KARAM LLC
12 Desbrosses Street
New York, NY 10013
(212) 489-3900
frank@fkaramlaw.com
Counsel for Plaintiff
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