MF Global’s $1 Billion|Claim Advances

MANHATTAN (CN) - PricewaterhouseCoopers must defend itself against a $1 billion lawsuit that claims its "improper accounting advice" caused former New Jersey Gov. Jon Corzine's MF Global Holdings to go belly up in 2001, a federal judge ruled Wednesday.

U.S. District Judge Victor Marrero denied the accounting firm's bid to dismiss a malpractice lawsuit brought against it by MF Global Holdings.

"It is plausible to conclude that PwC's accounting advice was a substantial factor in how MF Global's investments through RTM transactions harmed MF Global," Marrero wrote. "It is also plausible to conclude that PwC should reasonably have foreseen how any improper accounting advice it provided ... could harm MF Global."

MF Global's attorney Daniel Fetterman, with Kasowitz, Benson, Torres & Friedman, hailed the decision.

"We are pleased with Judge Marrero's well-reasoned decision and look forward to presenting our case to a jury," Fetterman said in a statement. "MF Global sought at least $1 billion for malpractice and negligence, and $10.8 million for unjust enrichment.

MF Global's attorneys have said it's the first case seeking to hold PwC liable for its alleged malpractice in its advice.

MF Global, formerly known as Man Financial, declared bankruptcy in 2011.

"PwC incorrectly and negligently advised the company to account for these Euro RTM (repurchase to maturity) transactions as if they were 'sales' up to 21 months before the company actually received those revenues and using off-balance-sheet accounting for those investments," the lawsuit claimed.

MF Global's then-CEO Corzine's bets on European sovereign debt came to light after the company collapsed.

Corzine was not named as a defendant in the lawsuit.

PwC sought to have the case dismissed, but Marrero rejected its argument that the claims were barred.

In its March 2014 lawsuit , MF Global claimed PricewaterhouseCoopers' "extraordinary and egregious professional malpractice" as its longtime editor and accountant cost it billions in investment dollars in European "debt instruments."

PwC's alleged conduct "is not the only plausible proximate cause of the harm alleged in the complaint," The judge wrote. "But sorting among the potential causes and determining which parties are liable is a task for a jury, not a judge deciding a motion to dismiss."

He also rejected PwC's argument that New York Law sets a three-year statute of limitations on actions in malpractice lawsuits, pointing out that limitations begin on the date malpractice is committed, "not the date on which it is discovered."

But, Marrero said, under the "continuous representation doctrine," the statute of limitations begins to run out "only when the entire course of the representation has ended."

The judge did, however, agree with PwC's argument that a contract claim is duplicative of a malpractice claim, and he dismissed that count against the auditor.

He also sided with PwC to dismiss unjust enrichment claims, saying that a "plaintiff can plead unjust enrichment as an alternative claim to breach of contract," but only if there is a legitimate dispute about the existence of a contract.

"Here, the parties do not dispute that written agreements cover the claims ," he wrote.

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