PwC faces suit for $1 billion over MF Global collapse

The administrator of MF Global Holdings Ltd's bankruptcy plan on Friday sued the auditor Pricewaterhouse Coopers for at least $1 billion over its advice on a $6.3 billion European sovereign debt investment that helped fuel the brokerage's rapid demise.

According to a complaint filed in the US District Court in Manhattan, PwC committed professional malpractice by offering "flatly erroneous" advice concerning, and approval of, the off-balance-sheet accounting treatment for the debt by MF Global and then chief executive, Jon Corzine.

The complaint said PwC knew the investment would add significant risk to MF Global's weak finances.

It said MF Global would not have taken on the exposure, which allowed it to book immediate revenue, had it received sound advice.

"PwC's professional malpractice and negligence were a direct and proximate cause of massive damages the company suffered," complaint said.

PwC spokeswoman Caroline Nolan said the accounting treatment that is the subject of the complaint has been examined by trustees, regulators and a congressional committee. 

"None of them has found that the accounting for those transactions was incorrect. PwC is disappointed that this meritless claim has been brought." 

Corzine invested $6.3 billion in debt of countries such as Belgium, Ireland, Italy, Portugal and Spain to advance his strategy of transforming his futures and commodities brokerage into a global investment bank.

But as Europe's economy weakened, MF Global struggled with worries about the debt, margin calls, credit rating downgrades, and news that money from customer accounts was used to cover liquidity shortfalls, ending in its October 31, 2011 bankruptcy.

The complaint said it is the first seeking to hold PwC liable for malpractice over its accounting advice for the sovereign debt.  

It does not address how customer money was used.

Creditors would share in recoveries if the lawsuit succeeds.