Overview
On November 18, 2011, the Honorable Victor Marrero of the United States District Court for the Southern District of New York granted final approval of a $90 million cash settlement in this precedent-setting securities class action addressing corporate forecasting and forward-looking statements.
Cohen Milstein, as co-lead counsel, represented the Central States, Southeast and Southwest Areas Pension Fund, which was one of the co-lead plaintiffs in the case.
Investor Impact
In September 2010, the U.S. Second Circuit Court of Appeals vacated in part the lower court’s dismissal of the case and remanded the case for further proceedings. In overturning the district court decision, the Second Circuit issued a decision that differentiated between a forecast or a forward-looking statement accompanied by cautionary language – which the appellate court said would be insulated from liability under the bespeaks caution doctrine — from a factual statement, or non-forward-looking statement, for which liability may exist.
Importantly, the Second Circuit accepted the plaintiffs’ position that where a statement is mixed, the court can sever the forward-looking aspect of the statement from the non-forward looking aspect. The court further stated that statements or omissions as to existing operations (and present intentions as to future operations) are not protected by the bespeaks caution doctrine.
Case Background
In 2010, MF Global was one of the world’s leading broker of exchange-listed futures and options. It provided execution and clearing services for exchange-traded and over-the-counter (“OTC”) derivative products, as well as for non-derivative foreign exchange products and securities in the cash market.
The lawsuit, initially filed in 2008, was brought on behalf of purchasers of common stock of MF Global pursuant or traceable to the Registration Statement and Prospectus issued in connection with the company’s initial public offering on or about July 19, 2007 (the “IPO”).
The complaint asserted that defendants assured investors that the company had in place a rigorous, robust system of risk controls capable of monitoring risk on a continuous, “real time” basis, when in fact, among other things, MF Global had deactivated trading and margin controls on brokers’ computers to speed transaction times. When a rogue trader subsequently lost $141.5 million speculating in wheat futures in overnight trading, MF Global was forced to absorb those losses as the clearing broker. When the news hit the markets, MF Global’s stock plummeted, losing $1.1 billion in market capitalization over a two-day period.
In August 2009, the court dismissed the case. However, in September 2010 the Second Circuit revived the suit and entered a precedent-setting ruling when it sided with plaintiffs on their claim that MF Global misrepresented its risk controls while marketing its IPO. In that decision, the Second Circuit held that companies cannot make false or misleading statements in their offering documents, and then hide behind risk disclosures related to those facts in their attempt to escape liability under the federal securities laws.
On October 31, 2011, MF Global Holdings, Ltd. filed a voluntary Chapter 11 petition for relief under the United States Bankruptcy Code. As a result of the bankruptcy filing, all pending litigation against MF Global was automatically stayed, including all proceedings in this case. Cohen Milstein, however, worked with counsel for the defendants and with MF Global’s bankruptcy counsel to have the automatic stay lifted, persuading the other defendants to replace the amount previously paid into the settlement fund by MF Global, as that amount was clawed back by the bankruptcy filing. Final approval of the $90 million settlement came a day after the bankruptcy court overseeing MF Global’s Chapter 11 bankruptcy granted MF Global’s motion to lift the stay, allowing the district court to go forward with the final settlement hearing.
Case name: Rubin v. MF Global, Ltd., Case No. 1:08-cv-02233, United States District Court for the Southern District of New York.