2nd Circuit Reinstates Class Action Against MF Global

9/15/2010 - Barrack, Rodos & Bacine announces that on September 14, 2010, the United States Court of Appeals for the Second Circuit reinstated a securities class action lawsuit brought on behalf of a class of investors who purchased common stock of MF Global, Inc. (NYSE: MF) in or traceable to its initial public offering in July 2007. The suit had been brought against MF Global, its former owner, Man Group, various officers and directors of MF Global, and the underwriters involved in the public offering for violations of the federal securities laws. The court of appeals decision constitutes a major victory for the Iowa Public Employees Retirement System and the Policemen’s Annuity and Benefit Fund of Chicago, which were among the lead plaintiffs in this action, and their counsel, Barrack Rodos & Bacine, whose partner, Mark Rosen, argued the appeal in the court of appeals.

In their complaint, the lead plaintiffs had alleged that the offering documents contained misstatements about the risk management system in place at MF Global and that the serious deficiencies in that system were not publicly disclosed until a trader ran up over $140 million in losses while engaged in unauthorized trading. When those losses became public, the price of MF Global stock plummeted. The plaintiffs had alleged that the company’s statements in its offering documents that it had a “robust” risk management system and engaged in “continuous” and “real time” monitoring of trades were materially false or misleading. In 2009, the district court had dismissed the complaint, concluding that defendants’ statements in the offering materials were immunized from liability by the “bespeaks caution” doctrine.

On appeal, the plaintiffs argued, and the court of appeals agreed, that the “bespeaks caution” doctrine does not apply to statements of present or historical fact and therefore alleged misstatements concerning the risk management system were not insulated from liability. The court of appeals thus concluded that the complaint should not have been dismissed and sent the case back to the district court. The decision of the court of appeals to reinstate the plaintiffs’ suit sends a clear message that boilerplate risk disclosures in a prospectus that “bespeak caution” cannot immunize from liability false or misleading statements of present or historical fact. Click here for a copy of the appellate court decision.

For additional information about the appeals court decision, or the case in general, please contact BR&B partner Mark R. Rosen by telephone at (215) 963-0600 or by email at mrosen@barrack.com.