MF Global

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 1 of 69
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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
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DATE FILED:/
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I . I
11
MF GLOBAL HOLDINGS LTD., AS PLAN

ADMINISTRATOR,
14-cv-2197 (VM)
Plaintiff, DECISION AND ORDER
- against PRICEWATERHOUSECOOPERS LLP,
Defendant.
--------------------------------~--x
VICTOR MARRERO, United States Disltrict Judge.
This
professional
malpractice
action
arises
out
of
auditing work performed by defendant PricewaterhouseCoopers
LLP
("PwC")
for
the
in its role as
out~ide
auditor and accountant
now-defunct brokerage a11d financial
MF Global Holdings,
Ltd.
services
firm
("MF GJ\obal") . MF Global Holdings

i
Ltd.
as
Plan Administrator
("Plan Administrator")
brought
'
I
this
case,
one
October 2011
of many filed
collapse,
i;1 the
in its
wake
capacity as
of MF Global's
assignee
of MF
Global's claims under the Second Amended and Restated Joint

Plan
of
Liquidation
Bankruptcy
seeks
Code.
damages
"extraordinary
The
of
and
Pursuant
to
Chapter
11
complaint , ("Complaint,"
at
$1
least
egregious"
Dkt.
billion
professional
of
for
the
No.
2)
PwC's
negligence
in
(1) approving MF Global's off-ballance-sheet accounting for

!
certain
transactions
in
EuroDean
sovereign
debt; and
( 2) approving
MF
Global' s
decision
not
to
record
valuation allowance against its deferred tax asset

prior to September 2011. Both of these decisions,
Administrator
argues,
were
snbstantial
( "DTA")
the Plan
causes
of
MF
Global's bankruptcy.
The Court denied PwC' s moticm to dismiss the Complaint
on in pari
delicto grounds
by
:::>rder dated July 9,
("July 2014 Order," Dkt. No. 18.;

the
2014,
Complaint,
Court
dismissed
By Order dated August 27,
twcil
of
the
but again declined ti> dismiss
negligence
claim
on
2014.
causation.
counts
in
the
the professional
grounds.
("August
2014
Order," Dkt. No. 21.)

Upon conclusion of
discoveJ;y,
PwC has
now moved
for
summary judgment pursuant to Rule 56 of the Federal Rules

of
Civil
PwC
Procedure
argues,
overcome
second,
the
first,
("Rule
that
affirmative
the
?lan
defensE:
advice
caused
MF
subsequent harm to shareholders.
Motion
of
Dkt.
No.
Administrator
in pari
46.)
cannot
delicto,
and
that the Plan Administra::or cannot show that PwC' s
accounting
filed
("Motion,"
56").
under
seal.)
("Opp.,"
Dkt.
The
No.
Plan
49,
Global's
collapse
( "PwC Mem. , " Dkt.

A.dministrator
f:.led
- 2 -
under
and
No.
4 7,
opposed
the
seal),
and
PwC
replied.
("Reply," Dkt. No.
51,
filed under seal).
For the
reasons detailed below, the Court DENIES PwC's Motion.

l
I .
BACKGFIOUNDl
l'
This
Court
decisions,
the
has
describec:l,
facts
and
collapse of MF Global.
Ltd.
74
Inv.
Litig.
(S.D.N.Y.
See,
~:-'
277,
2d
Action").
The
circumstances
against
PwC
Court
surrounding
in previous
Global Holdings
Ltd.
alsoi
the
(MF Global I) ,
2013)
detailed
in this
("Securities
the
3d 206
(S. D. N. y.
Pricewai:erhouseCoopers
PricewaterhouseCoopers
(S.D.N.Y.
prior
2014).
decisions.
The
At
2014) i
LLP,
~!F
43
Global
F.
Court assunes
this
specific
stage,
3d
See MF
LLP,
Holdings
Supp.
claims
action.
-------~~----------i,
Supp.
In re
982 F.
P Lan Administrator's
decisio:1s
v.
the
2d 157, 168-
Customer Action");
(S.D N.Y.
has
surrounding
998 F. Supp.
("Commoditief:!
293-300
previous
In re MF Global Holdings
_M_F_G_l_o_b_a_l_H_o_l_d_1_n_g...__s_L_t_d_.__S_e_c_._L_1_1]:i:s..:_
Supp.
numerous
circumstances
(MF Global II),
2014)
in
57
F.
Ltd.
v.
309,
314
familiarity with these
however,
the
evidentiary
PwC has filed a Local Civil Rule 56 .il Statement of Undisputed Facts
("Def.' s 56 .1," Dkt. No. 47, filed und~r seal) . The Plan Administrator
has filed its Objections and Respons~s to PwC' s Rule 56 .1 ("Pl.' s
Response 56.1,'' Dkt. No. 49, filed unde~ seal) as well as its own Local
Civil Rule 56 .1 Counterstatement of Fa~ts ("Pl.' s 56 .1," Dkt. No. 49,
filed under seal) . PwC has filed a re~ly to the Plan Administrator's
Objections and Responses to the Plan l~dministrator' s Counterstatement
of Facts ("Def.'s Reply 56.1," Dkt. No. l51, filed under seal).
1
record is more thoroughly develO'\)ed

and further elaboration
"j
of this matter's factual background is appropriate.
A.
THE PARTIES
MF Global was a registered :utures commission merchant
and broker-dealer firm
that
its
its
customers
March
2011,
Global's
and
for
J.
Chief
("Steenkamp")
Randy
the
own
account.
MacDonald
Financial
was
exe':uted trades
From
2008
("MacDonald")
Offi:::er
firm's
on behalf of
and
Henri
until
was
MF
Steenkamp
Ch:.. ef Accounting Officer.
In
March 2011, Steenkamp took over the role of Chief Financial

Officer while
remaining
Chief
.A,ccounting Officer.
role as Chief Accounting Officer,

for
MF Global' s
Group
("MF
External
Accounting
Steenkamp was responsible
Reporting
Group" ) .
and Accounting
Within
wa~
Group, Margaret Sear ("Sear")
In his
the
MF
Policy
Accounting
Accounting Policy Manager
until July 2011.
Pallavi Rayan
( "Rayan")
the MF Accounting Group until March 2011,

she
became
March 2010,
Global
Controller.
Jon S.
Corzine
Chief Executive Officer.
tDef. 's
( "Co::~zine")
was
member of
after which time
56. 1
~~
8-12.)
In
became MF Global' s
(Def.'s 56.1 ~ 71.)
PwC began performing indeper:ident audit services for MF

i
Global in 2007. During the time lelevant to this action, MF

Global
engaged
PwC
to
audit
- 4 -
MF
Global' s
financial
statements
("Fiscal
2011") ,
for
the
Year
and
2010")
to
yea:'~s
fiscal
review
and
March
the
firm s
preparation for MF Global' s

~ 3;
Declaration of
("Murphy Dec.")
agreed
that
Ex.
J.
28,
integrated audit
31,
March
2011
quarterly
reports.
31,
2010
("Fiscal
Year
statements
In
29.)
29,
:he engagement letters,
responsible
in accordance
for
with
in
(Def. 's 56. 1 at
Emmett r.,urphy dated Jan.
was
it
10-q
ending
performing
standards
2016
PwC
its
established
by the Public Company Accounting Oversight Board ( "PCAOB") ,

'
including obtaining "reasonable c:!.ssurance about whether the

financial
(Murphy
statements
Dec.
Exs.
are
28,
management,
Global's
conformity
with
( "GAAP") .
(Def.' s
engagement,
Linda
material
misstatement."
Pl.' s
Response
56 .1
in
turr.,
agreed
that
Generally
56 .1
of
29;
reporting
for
responsible
free
financial
Accetted
4.)
McGowan
Dt::ring
('McGowan")
4.)
it
information
Accounting
the
MF
was
in
Principles
Fiscal Year 2010

was
the
PwC
engagement partner with the res1:1onsibility for work on MF

Global' s
the
Fiscal Year 2010 audit.
Fiscal
("Gallagher")
~
Year
(Def.' s
56 .1
George
2011
was the PwC engage::nent partner.
120.)
- 5 -
7.)
During
Gallagher
(Def.' s
56 .1
PwC issued an audit report .:or Fiscal Year 2010 on May

27,
2010,
which was included in MF Global' s
required Form
10-K filed with the United States Securities and Exchange

Commission
("SEC")
on May 28,
2010
and an audit report for Fiscal
(Def.' s
~ear
56 .1 at
2011 on May 19,
6) ,
2011,
which was included in MF Global's Form 10-K filed with the

SEC on May 20,
2011
(Murphy Dec.
Ex.
96).
act as MF Global's independent a-,iditor,
PwC continued to
reviewing quarterly
financial reports and responding to MF Global' s

inquiries until MF Global filed
31,
2011.
for bankruptcy on October
(See Declaration of Fr:mk
s.
Dicarlo dated March
11, 2016 ("Dicarlo Dec.") Ex. 120; Turner Dec.

B.
87.)
THE RTM STRATEGY

Prior
primarily
to
early
through
2010,
MF
commissions
interest on customer accounts.

3;
accounting
Murphy
undertook
Dec. ,
a
Ex.
new
94. )
Global
on
customer
Corzine
st~ategy
transform MF Global and reverse a
(Def.'; 56 .1
the
increaj;ed
including
strategy
was
significant
investmen:.s
- 6 -
became
an
Ex.
and
4 at
CEO,
he
attempt
to
recent period of losses
to achieve profitability.
new
in
revenues
orders
(See Dicarlo Dec.
Wher
investment
earned
72.)
The core of
proprietary
in
European
trading,
sovereign
debt
financed
through
repurchas1'~
agreements.
(Murphy Dec.
Ex. 3 at 125:23-126:15)
A repurchase
agreement
selling a security,
for
cash
while
or
"repo"
involves
in this case. a bond,
simultaneously
agreeing
one
party
to a counterparty
to
buy
security at a specified future &tte and price.
back
the
(Def.'s 56.1
'
21; Deel. of Lynn E.
Turner dc:ited March 8,

'
2016
("Turner
Dec.")
39.)
MF
Global
unde1took
specific
type
of
repurchase agreement which it re'ferred to as a repurchaseto-maturity
( "RTM")
transaction.
from an ordinary repo by the fa.ct

the
seller
is
required
"termination date")
is
to
the
An
RTM
distinguished
that the date on which
repurchase
i
samE:
is
as,
or
the
(the
bond
functionally
same as, the maturity date of the bond. 3 (Def.'s 56.1
the
23.)
This means that the seller rece:.ves the proceeds from the
original
bond
repurchase
the
at
the
same
bond from
may be settled through a
time
the
as
b1.yer;
it
is
required
accordingly,
the
to
RTM
clearhtghouse so that the seller

!
As discussed further in this Decision and Order, the parties actively

dispute whether the repurchase agree~ents undertaken were actually
RTMs. (See Def.'s 56.1, 23; Pl.'s 56.ll1j 23; Turner Dec., 48.)
Conversely,
a
"reverse RTM"
is a\ reverse repurchase agreement
involving the purchase of a security su:!)ject to an agreement to sell it
back at or close to the maturity date? of the security. As discussed
further in this Decision and Order,! the parties actively dispute
whether under GAAP the termination dat1!\ of an RTM or reverse RTM must
precisely match the maturity date of. the underlying security.
(See
Def.'s 56.1, 23; Pl.'s 56.1, 23; Turnei.r Dec. , 48.)
7 -
receives the difference between :he accrued interest on the

bond
and
the
Christine E.
~~
payment
to
the
}:,uyer.
Pallone dated Marcl l
26, 29); Turner Dec. at
8,
(See
2 016
Declaration
of
("Pallone Dec.")
52.)
In Fiscal Year 2010 and to a greater degree in Fiscal

Year 2011,
MF Global increased :.ts use of RTMs to finance
larger investments in European bonds

The
Court
previously
Strategy,
which
subsidiaries
MF
explained , the
was
Global
coordin:lted
:
Inc.
( "MFGI")
(the "RTM Strategy") .

operation
with
and
of
MF
MF
the
RTM
Global's
Global
u. K.
Limited ("MFG-UK"):
[F]irst,
MFG-UK purchased European sovereign debt
securities
on
the
London! Clearing House
( "LCH")
exchange.
MFG-UK then solcl those securities to MFGI.
Next, MFGI and MFG- UK enteJed into an RTM agreement.
to MFG-UK while the
MFGI thus sold the securi~ies
:
firms simultaneously enterel':i a contract for MFGI to
repurchase the securities ob the securities' maturity
dates,
at
the
same pride plus
a
pre-negotiated
interest
payment.
MFG-UK,;
which
now
owned
the
securities,
then engaged !in a
similar repurchase
transaction with a counterp~l.rty through the LCH.
The
repurchase date on that trahsaction was scheduled for
two days before the securit~es' maturity date. MFG-UK
thus bore the risk of def!ult on the security, and
MFGI was responsible for f maintaining liquidity to
cover the possible default. l MFGI was also expected to
provide MFG-UK with funds ~to cover margin calls or
anticipated margin calls fro+n the LCH.
MF Global I,
982 F.
Supp.
2d at 296.
The discovery record
supports this summary of the al .. egations
- 8 -
in the Complaint
at
this
stage
of
litigation.
~'
1,See,
Declaration
of
David Mordecai dated March 8, 2016 ("Mordecai Dec.") , 20.)

I
Corzine was an advocate of the RTM Strategy,

in part because the interest
was
significantly greater than
rate spread,
,
76-77;
became
RTMs
Ex.
proprietary trading:
Euro
spread for European bonds
::he United States
presenting a profit opportunity.
Murphy Dec.
ultimately
109
rat1~
3 at 1::42: 5-18.)
sizeable
::::omponent
MF Global
worth
more
at least
interest
(Def.' s
56 .1
The RTM Strategy

of
MF
Global's
:mtered into approximately
than.
$100
million
between September 2010 and Septe!nber 2011.
in
profits
(Def.' s 56 .1 , ,
84,
The
96-97.)
investments
Spanish,
RTMs
were
usei
in Euro sovereign
to
dii~bt
in the
MF
Global' s
form of
Irish,
Italian, Belgian and Portuguese bonds with a total
par value of over 10 billion Etros.

102,
finance
128.)
(Def.' s
56 .1
,,
101-
MF Global's exposure to European sovereign debt
through Euro RTMs increased from 150 million Euros in June

2010
to approximately 4. 4 billic n Euros in June 30,

1
(Def. 's
56. 1
132.)
MF
Glol 11al' s
Board
of
2011.
Directors
approved the RTM Strategy and repeatedly approved increases

J
of
the
firm's
limits
on
its
Euro
sovereign
(Def.' s 56 .1 , 104; Murphy Dec. E:<:s. 24, 43, 45.)
- 9 -
portfolio.
C.
THE SALE ACCOUNTING DECISIO:t'.

During Fiscal Year 2011 and until MF Global ceased the
RTM
Strategy,
the
proceeds
fr'om
MF
Global' s
Euro
RTM
transactions - the interest rate of the original bond minus

the rate paid to the RTM counteiparty - were accounted for
l
on MF Global' s balance sheet as ;>ales at the origination of

the
transaction.
(Def.' s
Under sale accounting,

de-recognized
from
the
balance ,sheet,
accounted
transaction.
(See Turner Dec.
to
adopt
sale
disputed,
for
as
accounting
53;
for
certain
so
prof it
responsibility
al though
Turner Dec.
97;
134.)
the bond <md the repo financing were
expected was
Which party bears
~:
56 .1
at
the
the
net
revenue
time
of
Murphy Dec.
for MF Global' s
:he
Euro
me: .terial
RTMs
is
facts
Ex.
the
50.)
decision
sharply
have
been
established.
In mid- to late 2009,
consider
the
transactions
2009.
August
(Def.' s
2009
preparing
memos,
56 .1
the
to
~
titled
("August
Sales."
treatmE~nt
accounting
used
2009
August
the MJ' Accounting Group began to
finance
for
European
certain
bonds
Sear prepared a
34.)
'
"Repo-to-Maturity
Memo",
2009
Mem)
Sear drew on accounting

-
'lurphy
10 -
and
in
Euro
October
draft memo
Transactions
Dec.
Ex.
subsequent
RTM
46.)
in
as
In
related
literature governing RTMs,
specifically Statement of Financ '.al Accounting Standard No.

140
("FAS 140") , codified as Fin,incial Accounting Standards
Board
( "FASB")
("ASC 860").
Accounting Standa:rds Codification Topic 860
(Def. 's 56.1 ~~ 25,
38;
Murphy Dec. Ex. 106.)
ASC 860-10-40-5 prescribes three requirements that must be

i
met for a transaction to be accoi:mted for as a sale. First,

I
the transferred financial assets must have been put beyond

the reach of the transferor and .its creditors.
transferee must have
asset
free
of
the
right
conditions.
Second,
the
to pledge or exchange
the
Third:,
the
transferor must
maintain effective control over Lhe asset.
not
(Murphy Dec. Ex.
106.)
The August 2009 Memo conclu;jed that,

day gap between repurchase
the
RTM
transactions
MF
and .maturity mandated by LCH,

Globc.l
conditions to be accounted for

46.)
It
included
despite the two-
footnote
iLS
had
executed
sales.
( 'Footnote
met
(Murphy Dec.
1")
stating,
the
Ex.
in
reference to the requirement for sale accounting under ASC

I
860 that the instrument has matUl,ed or expired upon receipt
of the collateral at maturity:

the
date
of
or a
few days
'We believe maturity means
befc,re
!,
the
end of
the
term."
(Def.'s 56.1, Murphy Dec. Ex. 46.) The August 2009 Memo was
shared only internally.
(Def.'s 55.1
- 11 -
~ 30.)
On October 2, 2009, David B:iteman ("Bateman") , an MFG1
UK repo
trader,
accounting
response,
e-mailed Sear
treatment
Sear
number of U.S.
wrote
in
RTMs
an
for
repo-to-maturi ty
secured
borrowings."
Following
this
(Def.' s
to
explain
the
transacted
by
MFG-UK.
In
e-nail
GAAP requirementf
account
47.)
for
her
~sking
that
"[t]here
are
we must meet in order to
tr :i.des
56 .1
inquiry,
the
as
35,
MF
sales
rather
Murphy
than
Dec.
Accounting
Ex.
Group
prepared a draft memo ("October ::009 Memo", Murphy Dec. Ex.

48)
that expanded on the analysi 1s in the August 2009 Memo.
The memo developed Footnote 1 to include the following:

A contract in which the term of the repurchase or
resale is within a few dayls (e.g., 1-3 days) of the
maturity of the underlyin~ collateral would not be
considered a repurchase or 11redemption before maturity
if, because of the timin~ of the redemption, the
original repo seller would ije unable to sell the asset
again before its maturity cf:.nd would be accounted for
as a sale provided the dther conditions are met.
(Def.'s 56.1, Murphy Dec. Ex:. 48.)
In her analysis
for
the October 2009 Memo Sear also
referred to a series of questiom
and answers about FAS 140
published by the FASB, one of wh::.ch analyzed the meaning of

"before maturity"
in practice.
question and Answer Number
48 opines that:
A transferor's agreement tc: repurchase a transferred
asset
would
not
be
condlidered
a
repurchase
or
redemption before maturity ~if,
because
of
the
timing
I
of the redemption, the trarfsferor would be unable to
- 12 -
sell the asset again before its maturity (that is, the
period until maturity is ;~o short that the typical
settlement is a net cash paiment). (Def.'s 56.1, ~ 39;
MF
Global
consulted
with
PwC
regarding
the
correct
accounting treatment for the RTI.'( transactions in late 2009

and early 2010.
In January 2010,
file entitled "Accounting for

2010 Memo")
the
RTM
books
56.1
executed
under GAAP
for
~
R'.~M
Trades in UK"
memo
to
("January
to document the MF AFcounting Group's review of
trades
treatment
Sear created a
the
44;
MF<;-uK
in advance
quarter
Murphy
by
Dec.
ending
Ex.
and
of
accounting
preparing MF Global' s
December
54.)
their
The
31,
2009.
January
(Def.' s
2010
Memo
stated:
Operationally,
LCH requireis us to repurchase the
underlying collateral two b1.~.siness days prior to their
stated
maturity
date.
S:~nce
the
collateral
are
European AA or better ra~ed government bonds,
it
typically takes three busi~ess days to settle these
bonds in the European marke~r3 As such, we will not be
able to sell the collaterafl to the market after we
repurchase them from LCH d,.,o business days prior to
their stated maturity date. '(January 2010 Memo at 1.)
The
January
2010
Memo
c'ited
opinions as well as ASC 860-10-!i5-51,
two
external
which states that a
repurchase agreement "would not .oe considered a

or redemption before maturity if.
the redemption,
financial
asset
legal
repurchase
because of the timing of
the transferor would be unable to sell the

again before
its
- 13 -
maturity."
(Murphy Dec.
Ex.
The
106.)
memo
concluded
khat
MF
Global' s
Euro
RTM
trades "meet the conditions for ierecognition for U.S. GAAP

financial statement reporting" uuder ASC 860.
(January 2010
Memo at 3.)
On
January
memo
to
UK")
asking
7,
employees
Murphy Dec.
for
Ex.
2010,
at
an MFG-UK
PwC' s
feedback
54 . )
Uni,ted
from
PwC
UK
employee
Kingdom
PwC.
.~,
off ices
(Def. 's
fciffwarded
which e-mailed Sear on January
emailed
the
( "PwC
56 .1
memo
the
'
52;
to
PwC,
asking whether net
2010
cash settlement was a requirement of sale accounting.
Sear
replied that in this circumstanc:= "judgment is required to

ascertain whether the transferor would be able to sell the
asset to gain economic benefits."
Rayan
January
treatment
of
18,
for
the
2010
the
MF
(Def.'s 56.1' 53, 56.)
Accountiiig
asking
if
RTMs
and
P\'C
Group
had
ncting
e-mailed
cleared
that
potentially apply this accountir.,g treatment

forward,
once we
Dec.
56.)
Ex.
clear
the
"we
PwC
on
accounting
will
only
in Q410 going
accc:unting with PwC."
(Murphy
PwC responded on the same day stating that
"the accounting treatment you have proposed is ok under the

:
facts of the situation you have
~~scribed
in the memo,
i.e.
time to maturity of the underlyiJ.g collateral at the point

!
you get it back is less than the trade date-settlement date

- 14 -
gap,
in
and to be very clear,

other
situations."
only ok if similar facts exist

(Murp:t:y
:~epo
subsequently e-mailed an MFG-UK

the
MF
Accounting
Group
Dec.
had
Ex.
Sear
56.)
trader to confirm that
"confirmed
treatment for UK RTM trades with PwC."
the
accounting
(Def. 's 56. 1
61,

Despite this correspondence
ultimately MF Global did
not account for RTMs as sales i
Fiscal Year 2010.
(Pl.' s
Response 56.1 ~ 189.) Although the parties dispute who made

j
the determination that sale accounting should not be used,

!
it is undisputed that the compo::dtion of the October 2009

RTMs
as
"two-legged"
that
repos
is,
RTMs
that
were
constructed of two back to back trades because LCH limited

repo terms to a year sale accounting.
~
64.)
(See Def.'s 56.J
Pl.'s Response 56.1
64;
PwC' s working papers from that period note that "we
communicated
repos]
prevente,,l them from qualifying for
our
findings
[regarding
the
back-to-back
to PwC NY who has reopened the discussion with group

!
finance team as the evidence appEhared

inconsistent with the
,,
I
accounting treatment agreed."
(Mprphy Dec.
Ex.
38.)
An
e-
mail from McGowan to PwC dated

"I have agreed with [Steenkamp]
Jc:~.nuary
2010 states that
that they will not book the
transaction as a repo to maturity."

-
28,
15 -
(Murphy Dec. Ex. 64.)
:~ayan
In December 2010, Sear and
t~J-legged
returning to the issue of the

for
sale accounting.
(Dicarlo rec.
the memo and advised MF Global

sale accounting for
circumstances.
prepared a draft memo
Ex.
repos' eligibility
73.)
PwC reviewed
:hat it could proceed with
the back-to.-back trades under certain
(Dicarlo Dec.
Ex.
71.)
Sear and Rayan filed
a later version of the memo in Ji'ebruary 2011.
(Def.' s 56 .1
~ 111.)
In Fiscal Year 2011, MF
Gl~bal
accounted for its Euro
I,
I
RTM
trades
continued
as
the
sales.
RTM
continued to account
56 .1
96-97.)
required to
(Def.'s
strategy
for
Lnto
September
:Def.' s
Memo"
and Ex.
memorializir.g
65,
56 .1
f!.irther memos
accounting for RTM transactions.

2010
the
2011,
sales.
its
firm
it
(Def. 's
MF Global was
the bond two business days
Accounting Group prepared two

2010
As
86.)
For each RTM cle'Lred on LCH,
repurchase
December
the Et::ro RTMs as
the maturity date of the bond.
and
56.1
98.)
before
The MF
in June
position
2010
on
sale
(Murphy Dec. Ex. 59,
"June
"December 2010 Memo") .
Both memos
stated:
As long as the normal trad1I~ date and settlement date
cycle for the repurchased c4llateral is at least equal
to or greater than the remc&.ining time to maturity of
the collateral at the repur&.hase date, the operational
restrictions specific to thJ UK RTM arrangements would
not preclude the trades frd\m being treated as sales,
I
- 16 -
provided other conditions a]re met. (June 2010 Memo at

3; December 2010 Memo at 3; 1Def. 's 56 .1 ~~ 69, 107.)
Critically,
strategy
was
the
parties
dependent
on
dispute
sale
whether
accounting.
the
The
RTM
Plan
Administrator argues that the R'I!M Strategy was expected to

add
to MF Global' s
revenue
in
large part
because
benefits of sale accounting. Tho:'1e advantages,
of
the
as described
ji
in
the
Complaint,
were
summari;zed
by
the
Court
in
the
Securities Action:
First, the RTM transactionsicould be counted as sales,
rather than as loans, even though MFGI and MFG-UK were
contractually
obligated l to
repay
the
final
counterparty for the secm~'ities. The obligation to
repay was thus "de-recognize'1d" - - it did not appear as
a liability on MF Global'~ balance sheet. The RTM
transactions also allowed MF Global to report the
transactions as gains atf the time of the sale,
notwithstanding the subsequdnt obligation to repay the
sale price. Finally, becaus~ no liability appeared on
MF Global' s balance sheet, t,.he RTM transaction did not
factor
into
MF
Global' 's
value-at-risk
("VAR")
calculations.
!
MF Global I,
982 F. Supp. 2d at
:~96.
PwC's position is that
the RTM strategy was not dependent on sale accounting,
and
l'
that
the
advantages
of
the
RTM. Strategy would
have
been
of
sale
adopted
for
accounting.
its
letter
("SEC")
pote11i.tial
regardless
(See infra, Section III (B) . )
On March 30,
2011
revenue
from
2011, MF Globa:l responded to a March 16,

the
Securitie
asking questions
about
- 17 -
and
Exchange
VIF Global' s
Commission
Form 10-K for
Fiscal Year 2010.
(Def.' s
56 .1
and commented on MF Global' s res;)onse.

PwC
issued its
audit
opinion f1)r
Global's 2011 Form 10-K.

D.
Gallagher reviewed
119.)
(Def.' s 56 .1 ,
Fiscal
Year
2011
120.)
in MF
(Def.'s 56.1, 127.)
THE DEFERRED TAX ASSETS DECl!SION

PwC also worked with MF Gl::>bal to review tax-related
accounting
decisions
including
the
allowance
against
standards
on
Codification
in
decision
as
74 O
dictated
( "ASC
take
valuation
139.)
in
allowance
~est
against
and
2010
take
assets
74 O.") ,
"more likely than not"
to
tax
apply a
a
Years
whethE!~r
deferred
DTA,
No.
Fiscal
require
valuation
( "DTA") .
Accounting
an
entity
negative evidence"
on
the
"all
DTA.
(Def.' s
available
positive
330;
Def.' s
56 .1
that
it is
and
that it will .generate sufficient future
taxable income to which it can ;:i.pply the DTA.

Dec.
to
in deciding whether to
it will be able to realize the DTA as a tax benefit,

based
GAAP
Standards
If an entity deems it ":nore likely than not"
predicting
2011,
56.1
145.)
(See Turner
If the opposite is true,
and the entity determines it is "more likely than not" the

entity will not be able to reaL.ze the full amount of the
DTA,
it should,
offset the DTA.
under GAAP,
(Turner Dec.
takt! a valuation allowance to

,
~96-97.)
- 18 -
MF Global included
DTA
with
other
assets
on
its
balance
sheet
which
it
reported in its Form 10-K for Fiscal Years 2010 and 2011.
In
Fiscal
Year
2010,
MF
Global' s
reported DTA were
million and $108 million in Fis,=al Year 2011.
$118
(See Murphy
Dec. Exs. 94, 96.)

As
with
the
account:.ng
sale
decision,
,.
parties
the
dispute
who
bears
ultimate
re!sponsibili ty
for
the
DTA
decision.
MF Global prepared memos quarterly and at yeari
end
for
Fiscal
Years
conclusions about the

allowance
position
Murphy Dec.
Fiscal
Years
Ex.
2010
33,
the
2011
In itn
2011,
(Def.' s
MF
documenting
its
change in the valuation
comp.::.ny."
36.)
and
valuation allowance.
and
"need for a
of
33,
2010
(Def.' s
financial
Global
56. 1
statements
did
148;
56 .1
not
145;
for
record
Murphy Dec.
Ex.
36.)
The memo prepared on the
subject of
the
2011 valuation allowance
{ "FY20ll VA Memo")
Global's
valuation
view
that
no
Fiscal Year
documented MF
allowance
should
be
recorded for Fiscal Year 2011. Tli.e

draft memo was sent from
I
MF
Global' s
Compliance,
26,
Director
Christine
Exti:~rnal
of
'
Herbst
{"Herbst") ,
2011 and later returned to
and edits on May 18,
2011.
Tax
to
PwC
ierbst with PwC' s
{Def.' s
- 19 -
Reporting
56 .1
and
on April
comments
147, 149;
Murphy
Dec.
Ex.
34;
Dicarlo Dec.
Exs.
104,
107.)
The
FY2011 VA
Memo states that despite MF Glol!>al's three-year cumulative

'
loss
position,
"management
beli,:ves
it
is
appropriate
to
consider more fully the business conditions facing the US"

!
in
deciding
whether
to
record
including "one-time unusual

Global' s
34.)
losses
The
recognize
during
the
memo
concludes
these
deferred
consolidated U.S.
char~jres"
fiscal
that
valuation
that contributed to MF
year.
"it
tax
assets
GAAP f inanciaJ
allowance,
(Murphy Dec.
is
on
appropriate
Ex.
to
the
Company's
statements and
no
valuation allowance should be rec;:>rded at this time."
(Id.)
In both the FY2011 VA Memo and MF Global' s

its 2011 Form 10-K,
strategies
that
it
notes to
MF Global listed several tax planning

could take
1.o increase
the
likelihood
that it would realize its DTA i1 the coming year.

56 .1
whether
157; Murphy Dec.

MF
Global
was
Exs.
34.
the
96.)
(Def.' s
The parties dispute
principal
participant
in
determining not to record a val1.:iation allowance for Fiscal

Year 2011,
in particular to what degree PwC was responsible
for suggesting the tax planning :strategies included in the

FY2011 VA Memo.
~~
(See Def.'s 56.1
220-221.)
- 20 -
146, Pl.'s Response 56.1
In contrast to the previous reporting periods in which

it had not recorded a valuation allowance,
2011
MF
Global
recorded
vall:ation
on October 2 5,
allowance
million for the quarter ending feptember 30,

Dec.
Ex.
98;
Pl. 's
Response
SE . 1
allowance reflected MF Global' s
of
2011.
The
21 7.)
$119. 4
(Murphy
valuation
conclusion that MF Global
was unlikely to generate sufficient income in the future to

utilize
its
U.S.
parties
dispute
DTA.
(Def.'s
whether,
if
valuation allowance
against
than
September
waiting
until
Reply
~:F
Global
E.
had
21;111,
MF
Global
(Def.' s
The
218.)
recorded
its DTA in March 2011
avoided bankruptcy or related da;:nages.

Mordecai Dec.
56.1
rather
would
have
159;
56 .1
~ 50.)
MF GLOBAL'S COLLAPSE
In mid- to late 2011, MF Global began to face severe
liquidity
issues.
The
parties
the decision to account
for
.rigorously
the
dispute
whether
Euro RTM transactions as
sales or the decision not to rei.:ord a valuation allowance

I
were proximate causes of MF Glol::jal' s collapse,
but certain
events leading up to that event are not genuinely disputed.

f
In August 2011,
the ratingf); agency Standard
&
Poor' s
1:,.
downgraded long-term U.S.
sovere~gn debt
from the triple-A
grading it had held for 70 yearsi.

I
- 21 -
(Def.' s 56 .1 ~ 164.) The
dispute
parties
to
what
ext en-::J,
the
market
in
European
sovereign bonds in summer 2011 !'las "volatile" and to what

degree
such volatility created liquidity problems
Global;
however,
it
is
undis~~uted
!'
that
the
for
LCH
MF
made
additional margin calls in the s111mmer of 2011, stressing MF

~
Global's liquidity.
~
166.)
(Def.'s 56.1
Pl.'s Response 56.1
166,
The margin that MF Globall was required to post for

~
certain Euro RTMs "dramatically" increased in 2011.

56 .1 ~ 167 I
(Def.' s
168 )
Also in August 2011,
the Fi:j1ancial Industry Regulatory

\!
Authority
("FINRA")
determined
that
MF
Global
had
been
incorrectly computing the amount' of capital required to be

held aside as
regulatory capita:- and ordered the
firm to
t,
come into compliance. 4
(See DecU1.ration of Paul K.

--
in Opposition to PwC' s
March 8,
2016
Michaud
1:
Motion f,i,,r Summary Judgment,

Ji,,
("Michaud Dec." )
i~
78 ;
Def . ' s
56 . 1
dated
1 71 . )
This determination required MF GJ!;obal to amend its Form 10,.
for the period ending June 30:,I
2011
and set aside $255
million in net capital.
(Dicarlo ;)ec. Ex. 11.)
MF Global had previously taken the i position that for net capital
purposes its Euro RTMs should be treied the same as U.S. Treasury
RTMs, for which there was zero capita
charge and MF Global did not
need to set aside additional regulator.. capital. (Def.' s 56 .1 , 170.)
However, FINRA and the SEC decided in August 2011 that the Euro RTMs
should be treated as long corporate bo s, requiring MF Global to post
additional capital. (See Murphy Dec. Ex.~ 23.)
4
- 22 -
On October 25, 2011, MF Glo]\)al announced a net loss of

jc
$191
million
for
the
quarter
e!nding
September
30,
2011.
(Pl.' s 56 .1 ~ 217.) The loss inc:Luded a valuation allowance

~
against the firm's DTA of $119.4 million.

day,
MF
Global
had
to
respond:
to
(Id.) On the same

large
margin
call
prompted by Moody's downgrade of MF Global' s
credit rating
),
to Baa3.
(Def.'s
56.1
172;
Mt)rdecai Dec.
Ex.
28.)
j1
That downgrade was followed by .11 further downgrade to Ba2

on October 27,
2011,
and a
do"'!ngrading by
Fitch to BB+.
(Murphy Dec. Ex. 14 at 15.)

In
the
week
prior
to
i:s
bankruptcy,
MF
Global
received additional margin calls1 from LCH for hundreds of

millions of dollars related to iits Euro RTMs.
~
176;
Murphy Dec.
Ex.
2.)
MF Global
(Def. 's 56. 1
could not meet
,"
final series of margin calls recieived from the LCH,

October
30,
2011,
it
became
apparent
that
the
the
and on
firm
was
unable to account for roughly $1 billion of customer funds.

(Def.' s
56 .1
177.)
Although tecutives made
efforts to sell the firm to

sale discussions
Inte~,~active
\i
ended after thJr?

~
last-minute
Brokers, LLC,
those
customer fund deficiency
came
to
light.
(Def.' s
56 .1
il 79.)
MF Global
filed
\'
bankruptcy on October 31, 2011.
(j)ef.'s 56.1
- 23 -
180.)
for
The
f ilr~d
I.'
Plan Administrator
the
on March
Complaint
I'
28,
The professional mal~iractice
2014.
of
cause
August
Order on
2014
agai~1st
Ii
surviving
action
PwC' s
claim
PwC
after
to
dismiss
motiion
sole
the
the
Court's
alleges
~
i
that PwC' s negligent professiona:j. advice regarding the sale

~
accounting decision and the DTA ~decision was a substantial
,.
i
factor in MF Global's
(Dkt.
bankruptc~.
1:
No.
2;
Opp.
at l-
3. )
PwC' s
Motion seeks summary i judgment for dismissal of

fl
the professional malpractice clam. PwC argues that

f:
doctrine
of
in
pari
delicto
bafrs
the
(1) the
Plan Administrator
!'
from
bringing
accounting
active
( 2)
find
claims
and
DTA
for
dama/3'es
r
decisions
related
l11ecause
and voluntary participanJ:
in
MF
to
the
Global
those
was
decisions;
sale
an
and
there is no evidence from wh:i.ch a reasonable jury could

I
that
PwC' s
bankruptcy
and
discussed
infra,
judgment
advice
proximj3.tely
subsequent
upon
record
and
other
discovery
period,
dama~!es.
review
including
memoranda,
cf
satisfied its burden of
(PwC
the
emails,
material
the
caused
Court
Mem.
voluminous
::)reduced
Einds
Global' s
at
deposition
demonstrating
- 24 -
MF
during
that
the
PwC
1.)
As
summary
testimony,
a
lengthy
has
absence of
not
any
genuine
issue
of
material
fact
on
the
in
pari
delicto
defense or on the Plan Administrator's claim.

f
II. LEGAL STANDARD
r
STANDARD OF REVIEW UNDER RUL!E 5 6

i:--
A.
Summary judgment is approprjiate if the evidence shows

i.
that
"there is no genuine dispute as to any material fact
and the movant is entitled to juc1lgment as a matter of law."

f1
Fed.
R.
Civ.
P.
56(a);
Celotex
1 ~orp.
\.
v.
Catrett,
477 U.S.
!:
317,
to
322
the
(1986). In making this assessment,

relevant
are material:
the
outcome
subs tan ti ve
law to determine
"Only disputes ovE:?r facts

of
the
suit
the Court looks
under
the
which
facts
that might af feet
governing
law
will
properly preclude the entry of i::ummary judgment." Anderson

v.
Liberty
Lobby,
Inc.,
survive summary judgment,
477
H.S.
242,
248
(1986).
To
the disputed factual issues must

i
also be
favor[]
"genuine"
that is,
\sufficient evidence
[must]
the nonmoving party for a jury to return a verdict

'
for that party." Id. at 249. The role of a court in ruling

on such a motion "is not to
reso~ve
disputed issues of fact
but to assess whether there are: any factual

tried,
while
inferences
resolving ambiguit:'.es
against
the
issues to be
and drawing
moving .party."
Knight
reasonable
v.
States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986).

- 25 -
United
The
moving
party
the
bears
initial
burden
of
demonstrating the absence of any genuine issues of material

1
fact.
See
party
Celotex Corp. ,
satisfies
provide
its
specific
u S. at 323.
4 77
burden,
facts
:he
showing
If
the moving
nonmoving
that
there
party
is
must
genuine
issue for trial in order to sur'i.ive the motion for summary

See Shannon v.
judgment.
New Yo:::-k City Transit Auth.,

i
332
F.3d 95,
98-99
(2d Cir.
2003).
In determining whether the
moving party is entitled to judJ:gment as a matter of
law,
1:
the
court
must
justifiable
against
"resolve
factual
whom
309
(2d
Cir.
2008).
judgment may not

speculation,
149
11
of
the
material
in
judgment is
Inc.
v.
favor
sought.
Sa:j.vino,
Although
the
and
of
the
Major
11
Inc.,
draw
all
party
League
542 F.3d 290,
party opposing
summary
"rely on mere conclusory allegations nor
D' Amico v.
(2d Cir. 1998),
from which a
:i.mbiguities
inferences
summary
Baseball Properties,
all
City o;: New York,
132
F.3d 145,
if there is any evidence in the record
reasonable inferenc:e could be drawn in favor
opposing
party
factual
that
dispute
stpports
exis~s,
finding
summary
improper. See Gummo v. Village o[E Depew, N. Y.,

107 (2d Cir. 1996).
- 26 -
that
judgment
a
is
75 F. 3d 98,
B.
PROFESSIONAL NEGLIGENCE
professional malpractice
PwC' s
claim asserts
of action brought under New Yor c law,

professional malpractice
requires
showing of
is a
three
cause
which provides that
"::ipecies of negligence"
(1)
eh~ments:
and
negligence
(2)
i'
which is the proximate cause of
(3)
Inc.
227
v.
Trafalgar
Power
Inc.,
2000) ;
see also Di Benedetto v.
359 F.
3d 627,
630
(2d Cir.
damages.
F.3d
Hydro Inv'rs,
8,
15
(2d
Pan Am World Serv. ,
2oq4).
Specifically,
Cir.
Inc. ,
to prove
i"
liability
for
professional
neg:Ligence,
plaintiff
must
show that:
(1)
the plaintiff con 111:racted for the service, or
the service ordinarily would be ,Performed in the course of

the
professional
contract;
performing
the
( 2)
"departed from the

relevant
the
Dev.,
field;"
plaintiff's
111
F.
obligations
defendant's
professional
under
(3)
in the
the de:parture proximately caused
injuries.
3d
services
'accepted standards
of practice'
I
and
Supp.
:.ts
Wax J:iiJ-2,
434,
44;7
LLC v.
(S.D.N.Y.
Bruno v. Trus Joist a Weyerhaeustr Bus.,
JFB
2015)
Const.
&
(citing
87 A.D.3d 670,
672
(N.Y. App. Div. 2d Dept. 2011)).

The
demands
normally
standard
of
that he or she
possessed
by
care
rec;ruired
"exercise the
1'
members
- 27 -
of
of
professional
skill and knowledge
his
or
her
trade
or
profession
in
good
contracting co. v.
196
must
1~:
1st Dept.
communities."
Inc.,
96)
AJ
234 A.D.2d 195,
(citing Restatement of
"beyond
the
point
of
speculation
and
a causal connection between its losses and the
defendant's
actions."
Bitterman,
Dept.
similar
299A). As in any negLigence action, a plaintiff
demonstrate
conjecture,
in
Trident Managrrs,
(N. Y. App. Div.
Torts, 2d
standing
Inc.,
Herbert
Post
J;I.
& Co.
v.
Sidney
~~~~~1~~~~~~~~~~~~~~---
219 A. D. 2d 214
224
(N. Y.
App.
Div.
1st
1996). The plaintiff must establish that but for the
alleged
malpractice,
ascertainable damages.
it
not
would
Franklin
have
Winard,
1.
sustained
199 A.D.2d 220,
Tu
221
(N.Y. App. Div. 1st Dept.
"but for"
cause,
19~,13).
the plaintiff
In addition to showing
nust
show that a
harm was
within the ambit of reasonably foreseeable risk. Aegis Ins.

Servs.,
(2d
Inc. v.
Cir.
Corp.,
2013)
51
7 World Trade Cc.,

j,
(citing
N.Y.2d
308,
L.P.,
Derdia1iian
316
(H.Y.
defendant could have concluded that a
v.
737 F.3d 166,

Felix
1980)
177
Contracting
(finding
"foreseeable,
that
normal
and natural result of the risk created by" the defendant's

f
act was
the harm to the plaintj ff) ) .
A defendant
is only
!"
responsible to "those with respe]::t to whom his acts were a

I
substantial
factor
in
causation." Rothstein v.
the
UBS AG,
- 28 -
sequence
of
708 F. 3d 82,
responsible
91
( 2d Cir.
2013)
(citing Lerner v. Fleet
(2d Cir.
Ba11~k,
N.A.,
318 F.3d 113, 123
f
abrogation on ofher grounds recognized by
2003),
I',
Am.
Psychiatric
Ass'n v.
Anther]1
Health
Plans,
Inc.,
821
;;
F.3d 352, 359

is
"an
(2d Cir. 2016)). P::::-oof of proximate causation

element
essential
any
of
malpractice
including accountant's malpractic;e." Herbert H. Post
claim,
&
Co.,
between
the
219 A.D.2d at 223.

Where
exist
there
intervening
acts
defendant's conduct and the plaii:ttif f's injury,
connection
is
N.Y.2d at 315.
not
automatically;
In that case,
severed."
"the causal
Derdiarian,
51
"lj:ability turns upon whether
the intervening act is a normal or foreseeable consequence

t
of
Id.
the
situation created by
Additionally,
an
intervenin~:r
actor of responsibility,
act
is
the
very
th:~
same
defendant's
act
negligence."
"may not
relieve
an
where t:le risk of the intervening

risk
which
renders
the
actor
negligent." Id.
C.
IN PARI DELICTO
Under New York law,
mandates
that
"the dc:>ctrine of in pari delicto
the courts will r:;ot
intercede
to resolve a
dispute between two wrongdoers." ,Kirschner v. KPMG LLP,
- 29 -
938
N. E. 2d 941, 950 (N. Y. 2010)
(footnote omitted) . 5 The purpose
of the doctrine is to deter ille:Jality by denying relief to

l
parties who have admittedly broken the law,

forcing
courts
intercede
to
wrongdoers. See id.

as
paymaster
thieves.")
of
in
while avoiding
disputes
between
two
("No court should be required to serve
the
wages
of
.crime,
or
referee
between
New York courts have long applied the doctrine
of in pari delicto to bar a debb)r from suing third parties

for a
fraud in which the debtoi participated.
See id.
at
\:
In re Bernard L.
950;
63
(2d Cir. 2013)
Madof f
In:r.
i
Sec.
LLC.,
721 F.3d 54,
(citing Barnes.v. Schatzkin, 215 A.D. 10,
10 (N.Y. App. Div. 1st Dept. 1925).

When
presented
as
an
affiJmative
defense
to
tort
claim,
in pari delicto "bars a party that has been injured
as
result
recovering
for
of
its
those
own
intentional
injuries
from
wrongdoing
another
party
from
whose
equal or lesser fault contributed to the loss." In re Lehr

5
The Plan Administrator's professionail malpractice claim is brought
under New York state law, and PwC' . in pari delicto defense is
correspondingly a state law defense. Se O'Melveny & Myers v. F.D.I.C.,
512 U.S. 79, 84-85 (1994) (holding t at where no federal statutory
provision applied, state law controlled. whether equitable defenses were
available against a trustee) . The appli ation of a state law defense to
state law claims is governed exclusiv ,ly by state law. See In re MF
Global Holdings Ltd. Inv. Litig., 611
App'x 34, 37 (2d Cir. 2015).
1
Although
federal
common law of
in paf
delicto
may
apply
where
the
plaintiff's claims are brought under f eral law, see, ~, Pinter v.

Dahl, 486 U.S. 622, 636 (1988); BrandAi Mktg. Corp. v. Bliss, 462 F.3d
216, 218 (2d Cir. 2006), New York's la of in pari delicto applies in
this case.
- 30 -
Constr.
(S.D.N. Y.
Corp.,
No.
15
Jan.
12,
2016)
43~0,
Civ.
2016
WL
164616,
(citin!S: Rosenbach v.
at
*4
Diversified
I:
Group,
Inc.,
2011)) .
part
of
Assocs.
85 A.D.3d 569,
"The
the
defense
Dept. 2014)
requires
plaintiff
Mgmt.
Corp.,
570
or
(N.Y.
App.
::.ntentional
its
agents."
980 N.Y.S.2d 121,
Div.
1st Dept.
conduct
Sacher
124
v.
(App.
on
the
Beacon
Div.
2d
(citing Kirschner, 93,'8 N.E.2d at 957).
In pari
delicto
is also p:1:-emised on the
traditional
j1
principle that a corporation is .liable for the acts of its

agents and employees.
In Kirschner,
See Kirschner,
--
!:
938 N.E.2d at 950-51.
the leading case g9verning the application of

f1
in pari delicto as a
defense urider New York law,
the New
York Court of Appeals answered a question certified by the

Delaware Supreme Court regarding, the scope of the
interest' exception to the in
of
the
cases
derivatively
considered
sued
its
~i.=-i
in
delicto defense. 6 In one
Kirschner,
independe::1t
'adverse
auditor
a
for
corporation
failure
to
detect fraud perpetrated by the i=orporation' s officers. The

~
Delaware Supreme Court posed the following question:

i
Would the doctrine of in pati delicto bar a derivative

claim under New York law whbre a corporation sues its
I
The adverse interest exception, whichi. is the single exception to the

rule that a corporate agent's acts a e imputed to the corporation,
arises where the agent has "totally ab doned his principal's interests
and
[is]
acting
entirely
for
his , own
or
another's
purposes."
Kirschner, 938 N.E.2d at 952 (emphasis ~n original).
6
- 31 -
outside
auditor
for
pro\ifessional
malpractice
or
negligence based on the a~ditor' s failure to detect
fraud committed by the cotporation; and the outside
auditor
did
not
knowintly
participate
in
the
corporations fraud, but ibstead failed to satisfy
professional
standards
i!lri.
its
audits
of
the
corporation's
financial f statements?
(Teachers'
Retirement Sys. of La. v. fricewaterhouseCoopers LLP,
998 A.2d 280, 282-83 (Del. ~10}}
Kirschner,
938
N.E.2d
at
949.
The
Kirschner
court
agreed with the Delaware court that in pari delicto barred

j;
the negligence claims against thE:i auditor. See id. In doing

so it noted that "the justice
0: 1:
the in pari delicto rule
is most obvious where a willful wrongdoer is suing someone

who is alleged to be merely negligent.
But .
. the
principle also applies where both parties acted willfully."

Id. at 464.
"Indeed, the principle that a wrongdoer should

f
not prof it from his own misconduct is so strong in New York

l
that we have
cases
and
said the defense applies even in difficult
should
not
be
weak:med
by
exceptions."
Id.
(internal citations omitted) .

This
Court
has
under New York law,
recognized
in
prior
as stated i:'."1 Kirschner,
decisions
that
the paramount
inquiry under in pari delicto isithe "relative fault of the

plaintiff
and
the
defendant,"
as
in
the
contrast
the
Kirschner court noted between willful as opposed to merely

negligent wrongdoers. DeAngelis ":. Corzine (In re MF Global
- 32 -
Holdings
Ltd.
2014);
(S.D.N.Y.
B.R.
Inv.
598,
Litig.),
see
al so
(Bankr.
608
decision
in
the
Circuit
summarized
99t
F.
2015).
Commo'dities
157,
190-91
Affirming
Action,
doct;rine
the
2d
rj=-_L_e_h_r__c_o_n_s_t_r_._C_o_r~P~ ,
In
S.D.N.r.
Customer
Supp.
the
that
Second
follows:
as
528
"[A]
corporation that engages in malf!easance

cannot sue outside
I,
l
accountants
who
negligently
faiiled
to
detect
or
prevent
that malfeasance." In re MF Globi

(DeAngelis
cert.
v.
Corzine) ,
sub
denied
611
Holdings Ltd. Inv. Litig.
F.
34,
App'x
nom.
Bearing
(2d
37
Fund
Cir.) ,
v.
LP
PricewaterhouseCoopers LLP, 136 S1 Ct. 497 (2015).

III. DISCU1SION
At the motion to dismiss t:!,hase this Court,
accepting
all
facts
alleged in the
motion to dismiss
Court
found
that
Complaiint as
true,
denied PwC' s
the professio:'.1al malpractice claim.

the
Plan Admi:1istrator had
The
sufficiently
alleged causation and that its c:laim withstood an in pari

delicto defense.
it
is
material
apparent
facts
With the benef:.t of

that
that
there
extensive discovery,
i1emain
~';,
preclude
summary
genuinely
judgment:
disputed
first,
regarding the application of in eari delicto as a defense;

!~
and second,
related to the causal relationship between the
sale accounting decision and MF G;Lobal' s bankruptcy.

- 33 -
PWC' S IN PARI DELICTO DEFENEj~
A.
In
its
dismiss,
July
the
2014
Court
Order
outlined
denying
tbe
PwC's
standard
motion
that
PwC
to
must
satisfy to prevail on a summary judgment motion:

l~
While in pari delicto coulld apply in a professional

malpractice
suit
in
!!which
the
corporation
intentionally participated hn creating and employing
the incorrect opinion,
stch as by "intentionally
provid[ing] inaccurate finlncial statements to" the
auditor, Sacher v. Beacon , Assocs. M mt. Cor . , 980
N.Y.S.2d 121, 124 (App. Di. 2d Dept. 2014), no such
allegations have been made 11 ere. If discovery reveals
a basis for allegations of~ that kind, the Court can
revisit whether in pari deb.icto applies on a motion
for summary judgment.
I
MF Global Holdings Ltd.

F.
Supp.
3d 206,
211
v.
PriqewaterhouseCoopers LLP, 57
~
(S.D.N.Y. ~:014). The central question
here is whether MF Global' s
par':icipation in drafting the
sale accounting decision by itself constitutes the type of

intentional financial wrongdoing that would preclude relief
I
under
in
pari
statement
applies
delicto.
in
the
only
if
July
MF
PwC
2014
Global
argues
Oriier
wc'Ls
that
that
in
the
Court's
pari
delicto
active,
"an
voluntary
participant in the allegedly impJf'oper accounting advice" is

fc
the
law of
the
case and that
upon discovery.
counters
that
FrwC has met
this
threshold
(See PwC Mem. at 3.) The Plan Administrator

a
sufficient
"degree
of
wrongfulness"
is
I'
required to implicate in pari
dEj~licto
- 34 -
under New York law,
and
that
PwC
cannot
show
th:
requisite
intentionally
(See
- - Opposition ,,at 5-7.)
wrongful action.
On this issue,
the Court must look once again to the
principles underlying the New Y?rk common law of
in pari
I'
Kirschne:'~
delicto as outlined in
York
courts
where
prior
to
unconscionable
conduct
in
Kirschnex:
applied
had
displayed
plaintiff
the
and other decisions.
that
ma:k:es
the
pari
New
delicto
"immoral
wrongdoing
of
or
the
party against which it is asserted at least equal to that

Chem~
of the party asserting it,"

231,
232
(N.Y.
gravely
App.
Div.
and
immoral
Bank v. Stahl, 237 A.D.2d

f
1st Dej)t. 1997), or "resorted to
illegal
Commonwealth Pictures Corp.,

Kirschner
itself
involved
fraud -- in one instance,

to
make
loans
and
in
conduct."
McConnell
7 N Y.2d 465, 471

corpc;1rate
(N.Y. 1960).
insiders
engaged
declined
of
to
these
facts,
broaden
the
anot 1er
the
:~ew
adverise
revise New York precedents as tci

N. E. 2d at
in
pari
agent's
959.
misstating
financial
On
York Court of Appeals

interest
exception
in pari delicto.
or
See 938
Kirschner did no': directly analyze whether
delicto
acts
in
wrongfully using customer assets
performance by misrepresenting c1:rtain tax obligations.

the basis
v.
would
were
not
apply
ir'
cases
intentionally
- 35 -
where
wrongful,
corporate
though
in
rejecting
the
plaintiffs'
aigument
that
New
York's
apportionment of damages statute 7 ' abolished in pari delicto,

the court noted that
the
statute
did
"there is no reason to suppose that
away
intentional conduct,
with
com\non-law
defenses
such as in pari delicto."
based
Id.
on
at 957
(emphasis added) .
Since Kirschner was decided,
law
of
in
auditor
pari
or
delicto
to
accountant
courts applying New York
claims
have
against
. recognized
corporate
the
doctrine
exclusively where corporate manarement was alleged to have

engaged in intentional
Litig.
App.
Trust
Div.
claims
v.
alleged
Marcum,
2d Dept.
against
to
recording
auditor
have
for
in
Div.
pari
delicto
criminal
value);
I,
Chaikovska v.
corporate
phantom
billings
2014)
291,
293
CRC
(N.Y.
where
management
L::.pper,
scheme,
revenue'
it
knew
no
payment
994 N.Y.S.2d 64,
was
67
(affirming summary judgment on
grounds
securities
N.Y.S.3d
~'
See,
where
Serino v.
1st Dept.
or fraud.
( f indi1ng in pari delicto barred
executed
revenue
1~
LLP,
2015)
would be received);
(App.
wrongdoin:~
when:
fraud
by
Ernst
&
fund
manager
grossly
Yc[;ung,
committed
inflating
LLP,
funds'
132 A.D.3d 938,
!'
939
7
(N.Y.
App.
Div.
4th
Dept.
2010)
(in
New York Civil Practice Law and Rules 3ection 1411.
- 36 -
pari
delicto
applied
to
bar
managers were
claims
against
"aware that
auditor
they were
where
corporate
fraudulently altering
the corporate books to obtain fur;ding for [the company] . ")

Conversely,
delicto
where
courts
a
have
corporate
to
d;~clined
ageint
f'
did
apply
not
in
pari
intentionally
provide
inaccurate
financial
Statements
to
its
outside
i:
auditor,
but may have acted merE\lY negligently.
Sacher,
980
Division
N.Y.S.2d
rejected,
at
at
124.
the
In
Sacher,
pleiading
stage,
!:
'
See,
the
~'
Appellate
an
in
pari
delicto defense in a derivative nuit brought on behalf of a

corporation
reasoned
against
that
the
the
corpora1tion' s
~
corporation
was
auditor.
not
The
alleged
court
to
have
"intentionally provided inaccurate financial statements" to

1::
the
auditor and therefore
could
not
satisfy the pleading
requirements for an in pari delic1.to defense. Id. 8

1.-:-
In this case,
the Plan Admlinistrator points out that
companies
routinely participate
decisions
related
to
their
in
formulating
f in9ncial
accounting
statements,
and
"if
lj
doing so established in pari
dEblicto when the
accounting
PwC cites Granite Partners, L.P. v.

ar, Stearns & Co. Inc., a case
in which a New York common law claim
s barred under in pari delicto
because the plaintiffs were the "cent .al decisionmakers" in wrongful
securities purchases. In that case, ,however, a bankruptcy trustee
straightforwardly alleged wrongdoing bn the part of the corporate
actors, and the court emphasized that ~the complaint did not sound in
negligence but in "deliberate misrepre~entation." 17 F. Supp. 2d 275,
309 (S.D.N.Y. 1998)
8
37
turned
out
to
be
simply
intentionally wrongful,
effectively
actions
put
an
against
rather
wro:mg
as New ) ork law requires,
it would
end
to
al:.
professional
(Opp.
accountants."
at
than
malpractice
7.)
The
Court
agrees, as it agreed in its July, 14 Order, that this is not

the outcome
law.
See
("such a
intended by Kirschni;=r and by New York common
MF Glob.
Holdings
broad reading of
Ltd...
57
F.
Supp.
3d at
212
the doctrine would effectively
put an end to all professional
actions against
~alpractice
accountants - an outcome not in line with Kirschner or the

New York courts' interpretation cf it.").
In the July 2014 Order,
th[e Court distinguished this
matter from the Commodities Customer Action,
in which the
I'
Court
dismissed
claims
against
grounds. See MF Global II,

Court observed,
PwC
on
in
pari
delicto
998 F. Supp. 2d at 187-190. 9 The
"[i] n the Commoc::dties Customer Action,
the
!c
face
of
violations
the
complaint
resulted
demonstrated
only
beca11~se
},
that
MF
any
Global
of
PwC's
employees
violated statutory and common la;w by transferring customer

1:
funds out of secured and segregr1ted accounts."
(July 2014
1:
9 The Court later granted final judgme~t as to the claims against PwC,
and the Second Circuit affirmed the dee . sion in In re MF Glob. Holdings
Ltd. Inv. Liti . (DeAn elis v. Corzine, 611 F. App'x 34, 36 (2d Cir.
2015), cert. denied sub nom. Bearing F,,.nd LP v. PricewaterhouseCoopers
LLP, 136 S. Ct. 497 (2015).
;
- 38 -
Order
at
8.)
Not
only
did
:he
Court
find
that
the
Litigation Trustee sought to hol il PwC liable for "something

1
MF
that
Global
indi~putably
officers
participated
in"
11
(id.),
to
it relied on the fact thc1it the "something" referred
constituted
fraudulent
transfer of
F.
2d at
998
Supp.
participation
decisive
at
cond1ct
unlawful
and
this
customer
funds.
the
See MF Global
II,
Tha:: distinction between mere
173-75.
intentionally
wrongful
i:
stage.
specifically,
There
is
action
material
remains
difference
between MF Global officers parti1j.:ipating with the company's

ji
auditors,
even
if
actively,
i,n
where
th:~re
strategy
accounting
the
formulation
is
no
of
evidence
an
of
i~
intentional
and
the
law
fraud
accounts
wrongdoing
same
by
and
on
the
.:orporate
individuals
commit;ting
improperly
wi thdd1.wing
applying
them
ti>
officials'
statutory and
funds
effectuate
from
part,
common
customer
unauthorized
purposes. 10
Applying
the
principles
st.ited above,
the
Court
now
't:
considers the summary judgment record presented by PwC in

support of its Motion.
This point explains the Court's emplfiasis in the July 2 014

the significance of the existence of ~idence at the summary
stage demonstrating that MF Global
fficers intentionally
inaccurate financial statements to
, C so as to secure
accounting strategy. See MF Global, 57 11'. Supp. 3d at 211.
io
39 -
Order on
judgment
provided
the sale
PwC~s
Sale Accounting -
1.
Evidence
r:
Regarding
no
PwC's
there
is
shows
MF Global
accountins;
disputing
had a
opinions
that
the
role,
ol"ten a
in
summary
this
case,
j udgrnent
vocal
record
role,
in
the
company's Euro RTM sale accounti::1g decision. But PwC cannot

f
show undisputed evidence that MF: Global was an intentional
wrongdoer
in
undertaking
decision,
in
the
inaccurate
sense
financial
that
that
role
:.t
statements"
in
the
accounting
"intentionally
to
PwC so
that
provided
it would
create an incorrect opinion. Sacher, 114 A.D.3d at 656.

--f-
PwC
contends
support
its
that
argument
several
that
intentionally participated in
key
pieces
the
of
Plan
evidence
Administrator
the sale accounting
c~eating
f!
decision.
First,
PwC
October 2009 Memo,

prepared
by
concludes
the
that
points
to
the
August
January 2010 Memo,
sale
Accountiqg
accounting,
Group,
is
Memo,
and June 2010 Memo
:.
MF
2009
the
each
of
proper
which
form
accounting for the Euro RTM trar).sactions through LCH.
of
{See
l'
PwC
Mem.
Group's
trades":
at
4.)
The
memos
"conclusion on
because
the
the
document
accq1unting
the
MF
treatment
Accounting
of
two-day ga.1p between repurchase
[RTM]
of
1,:
bond and its maturity on the Lc;::i: meant that "the original
i::
repo seller would be unable to f: ell the asset again before

- 40 -
its maturity"
such repurchase would be accounted for as a
sale "provided the other condi tfons are met."

Exs. 46, 48, 54, 59, 65). The
pr~paration
(Murphy Dec.
of the memos, PwC
argues,
shows that MF Global "dr:.)ve the decision to account
for the Euro RTMs as sales."

The
memos
reached
account
for
indicate
preliminary
conclusive
the
RTMs
evidence
intentional
(See PwC Mem. at 2.)

-f
~F
that
Global
conclusjion
as
of
sale::>.
the
provision of
that
researched
the
However,
so::7t
firm
they
necessary
inaccutrate
to
financial
and
should
are
not
establish
information
or misleading action on the part of the MF Accounting Group

that would bar a claim by the P:,.an Administrator on behalf
ft
of the corporation under in parjir delicto.
To the contrary,
the memos could equally lead a ::'.actf inder to conclude that

the
MF
Accounting
Group
f ollcwed
standard
practice
by
undertaking its own good faith J,esearch about whether sale

:)
accounting applied before consu:!:ting PwC and awaiting its

response.
(See Opp. at 2.)
The :u1arties do not dispute that

J1
11
Sear began to
sovereign bond
accounting
consider
the
transactions
accbunting
li
in October
literature on RTMs,
parties
also
agree
that
FAS
(Def.' s 56 .1
after
- 41 -
2009
including
860, prior to drafting the memosi.

The
treatment
Sear
sent
and
140
~~
the
for
Euro
analyzed
and ASC
34,
38.)
January
2010
Memo
to
PWC
PwC,
resporded
to
Sear
and
the
MF
!:i
Accounting Group conf irrning that
"the accounting treatment
you have proposed is ok under :he facts

you have described in the memo, '
of
the situation
after which Sear emailed
MFG-UK that "we finally confirmei,d the accounting treatment

for UK RTM trades with PwC."
Plan
Administrator
also
(MtJ,rphy Dec.
points
to
Ex.
56,
57.) The
communication
between
Sear and accounting groups at other brokerages asking for

~
input
~
on
how
to
account
for
RjTMs.
184, citing Murphy Dec. Exs.
this record,
(Pl.' s
Response
56 .1
5:., Dicarlo Dec. Ex. 42.)
On
the evidence suggests a distinction between MF
Global officials offering PwC thidr opinions about the sale

accounting treatment -- even if professionally erroneous
based
on
findings
the
of
their
research,
as
opposed
to
1-
providing facts within the compa1j1y' s purview that they knew

~
were
incorrect
and
nonetheless intentionally
communicated
to PwC. The existence of the memos does not support summary

!
judgment
on
the
basis
provided
inaccurate
that
MF
financial
Global
"intentionally
statements."
Sacher,
114
A.D.3d at 656.
Second,
Finance
Group
PwC
highlights
Department
listed as
event
one of
November
during,
which
2010
the
MF
MF
Global
Accounting
~'
its yearly accomplishments

- 42 -
having
"created
additional
balance
sheret
capacity
for
the
firm
by arguing with PwC that trades could be treated as

bo~rowings."
sales rather than as secured

6. )
This
Group
is evidence,
"continued
January
2010."
PwC arguE!!s,
to
own
the
(Id.)
The
framing
that
(See PwC Mem.
the MF Accounting
accounting
of
at
decision
the
sale
after
accounting
decision by the MF Accounting Gr;:>up

as an "accomplishment,"
1;
like
the
content
represents
of
evidence
the
varieius
of
MF
memos
described
C:lobal' s
above,
participation
research related to the sale ac:counting decision.
in
It does
11
i'
not,
however,
support a conclusion as a matter of law that

f:
MF Global intentionally provide('

PwC
related
to
therefore not
the
propriety
evidence
that
inaccurate information to
of
sale
"mj:ght
accounting
affect
the
and
is
outcome of
I
,;
the suit" under New York law. Anckerson, 477 U.S. at 248.
-1
Third,
PwC offers deposition testimony by MF Global' s
officers and directors to show that MF Global's accounting

team had a
"starring role"
in
dl~termining
,,
the correct Euro
h'
RTM
accounting.
(PwC
Mem.
at
8.)
PwC
cites
deposition
testimony by MacDonald about MF ,3lobal' s responsibility for

accounting:
accounting .
"[I]t's
up
to
us
to
come
up
with
the
right
. so certainly [Pit1C] would have opined on it
for their audit and we would havi= had a discussion if there

-
43
was any sort of disagreement a:t::mt how we were accounting

B
for something."
(PwC Mem. at 7,
::iting Murphy Dec. Ex. 7 at
Similar testimony comes from a member of MF
256: 15-257: 3.)
Global's Chair of the Audit and Risk Committee stating that

"accounting policy is owned by financial management.
It's
the external advisor's job to :r'eview that policy and make

i
sure they are comfortable with :.t."

Murphy
Dec.
Ex.
support
PwC' s
at
(PwC Mem. at 7,
233:21-234:2.)
\
contention that
firm's accounting policy.
These
rtiF Global
Once ,:1.gain,
citing
statements
helped shape
though,
the
they do not
establish that MF Global' s ultimate implementation of sale

~~
accounting
was
related to PwC' s
negligence
the
solely
its
detcision,
and
not
causally
approval of it: based on the professional

Plan
Administrc:Ltor
alleges.
Nor
do
the
statements establish that MF Glcbal intentionally misled or

provided inaccurate
Administrator
imperative
maintains
to MF Global
with MF Global
56 .1
financial
184.)
as
s :atements to PwC.
that
that
"l1wC
was
p'.,c,
as
to accountin!g
t'
It cites e-mails
aware
The Plan
that
its auditor,
issues."
it
was
agreed
(Pl. 's Response
:tnd testimony demonstrating
that MF Global's conclusions resUa.rding sale accounting were

~
"preliminary"
and "subject to 11wC' s
review and approval."
~.
(Pl.' s
Response 56 .1
184;
see infra Section III (A) (2).)
- 44
This conflicting testimony rais(!S a
triable issue of fact
as to MF Global' s role in the sa:1e accounting decision. The

testimony presented by PwC does not establish conclusively
that MF Global engaged in intentional wrongdoing related to
the sale accounting decision.
Fourth,
PwC offers e-mails between MF Global employees

1:
which,
PwC
maintains,
show
that
MF
!~
Global
internally
discussed concerns about the pot:ential

for RTM transactions
j,
i''
during
the
the
bond
two-day gap between MF Global' s

and
the
bond's
mat;urity
to
,,
repurchase of
jeopardize
sale
J'
accounting.
private
PwC argues that MF Global
concerns"
about
"concealed from PwC
transac::tions
that
could
preclude
sale accounting.
factual
(PwC Mem. at 8.) This constitutes the only
assertion
intentionally
by
misled
PwC
also
raises
accounting.
It
fact.
that
For
made
reason,
PwC
as
that
:o
the
)Oint
the
Court
conflicting factual accounts on
.,t
suggests
MF
propriety
of
Global
of
sale
disputed material
cannot
resolve
the
summary judgment motion.
PwC cites a portion of MF 3lobal expert Lynn Turner's

~
("Turner")
report
highlighting
March
2011
transaction
that, Turner concludes, would ur;:.aermine the sale accounting

'~
decision. The report describes flii:F Global' s repurchase of an

!
Irish bond two days prior to tt'e bond's maturity,

- 45 -
followed
by
its
sale
agreement
of
to
demonstrate
portion
repurchase
that
MF
of
the
it.
Global
Such
bond
a
subject
to
transaction
maintained
effective
an
would
control
over the bond in violation of A8C 860's standards for sale

accounting.
however,
(See
Turner
~~
Dec.
PwC
183-87.)
itself,
disputes that such a bond transaction took place.
(Def.' s
56 .1
Regarc~Uess
113-115.)
of
its position that
fl
the
two-day
repo
never
material that MF Global
PwC
happenei:d,
~
argues
that
it
is
discussed the potential
interna~ly
1~
for such a transaction but

PwC."
"nev,!~r
'
(PwC Mem. at 10.) It
poin~s
and another MF Accounting Group

asked,
are
shared its concerns with

to an e-mail between Sear
colleague
in which Sear
"Are you as troubled with regard to the fact that we
able
to
(Murphy Dec.
repo
Ex.
it
41.)
after
re taking
possession
of
it?"
A later e-mail from Sear to another
MF Global employee stated that a hypothetical reverse RTM

would
jeopardize"
"absolutely
treatment.
(Murphy Dec. Ex.
"never communicated Sear's
62.
sale
accounting
PwC argues that MF Global
conc~rns
to PwC."
(PwC Mem.
at
10.)
The
Plan
Administrator
f:].trongly
disputes
that
MF
'
Global
concealed any doubts
al:1out
the
propriety of
sale
1:
accounting from PwC. It argues that to the extent MF Global

- 46 -
internally questioned whether Sc.le accounting applied,

firm
resolved
any
initial
doul11ts
in
good
faith.
the
Record
evidence presented by the Plan Administrator supports this

contention,
cited
by
including
PwC.
message asking
potential
for
One
if
a
excluded
such
her
portions
e-mail.
is
colleaguE1~
second
repo.
was
of
the
response
to
"troubled"
(Murphy
Dec.
e-mails
Sear' s
about
the
41.)
The
Ex.
colleague replies that "if it if. our usual practice to

.
not repo the security again,
argument for RTM."

email
stating
think we could make the
that
RT~'.!s
f:
reverse
accounting,
the
Plan
summarizing
the
firm's
assessment of
In response to the
would
"jeopardize"
Adminits tra tor
cites
cone::. us ion
the accounting
upon
63.)
email
"detailed
reviewed by PwC"
reverse RTMs "do not negate" sale accounting.

Ex.
an
sale
that
(Murphy Dec.
The Plan Administrato:r. has provided "evidence in
the record from which a reasonal:!le inf ere nee could be drawn
;
in
its
favor"
on
the
issue
concealment took place. Gummo,

PwC' s
proffered evidence
about
sale
material
accounting
fact,
and
is
thus
that
Qf
whether
any
intentional
75 F.3d at 107. Accordingly,
'.-'IF Global
the
subject
insufficient
judgment on this basis.

- 47 -
concealed doubts
of
to
dispute
permit
of
summary
2.
Sale Accounting
Plc:1.n Administrator's
Evidence
The Plan Administrator p:rer;ients additional facts that

!i
'i
are material to the issue of whether MF Global engaged in

intentional wrongdoing in the course of the company's sale
accounting
memos,
decision.
These
facts
are
and contemporaneous note;s
drawn
from
e-mails,
that raise material
fact
disputes as to whether ( 1) at a Ll times MF Global gave PwC

the final word on accounting
tr~~atment,
~
and (2)
at no time
did MF Global provide deliberatejly false information to PwC

~
or conceal private doubts about, sale accounting.
(See Opp.
at 8-12.)
Cour~
The record before the

a
genuine
ultimate
issue as
contains evidence creating
to whether MF Global or PwC made
decision regarding
sa]j.e accounting.
I'r
Emails
the
among
the MF Accounting Group and between the MF Accounting Group

~
and
PwC
ref le ct
an
understanding that PwC' s review was

'
necessary prior to MF Global i nplementing sale accounting
!,
for Euro RTMs. Sear initially e-.mailed PwC the January 2010
Memo asking it to
"review
know if any concerns"

e-mail
from
Rayan
[thel
attached memo and let us
(Murphy n;.:c.
asking
"hc:i.s
Ex.
your
54) ,
team
accounting treatment for RTM in the UK?

potentially apply this accountj:ng treatment
- 48 -
followed by an
cleared
our
we will only
in Q410
going
forward,
once we
clear the
acc::mnting with
PwC."
(Murphy
Dec. Ex. 64.) A January 4, 2010 e-mail from Rayan to a MFGUK employee states "we have bee1'1 working on memo outlining
our position for getting repo t? maturity treatment in the
UK.
it
. I think it would be p1;udent to have PWC UK review

~
and confirm
that
we
(Murphy
Global
can
their agreement,
definitely
Dec.
Ex.
wanted
52.)
to
get
before
t'J.is
"have
e-mail
quic:.i~
tell
accounting
I,
Another
we
the
treatment."
emphasized
review
with
desk
that
PwC
on
MF
this
'
[accounting treatment]."
The Plan Administrator als0:. points to the fact that MF

~
Global did not book any Euro Ri'TMs as sales during Fiscal
Year 2010 because it was instn;:cted by PwC that the "two-
'
wo.ild
l
legged"
repos
transactions
not
square
with
sale
accounting. An email from McGowan confirmed that MF Global

would
not
book
instructions.
workpaper
where
applied."
Ex.
42,
is
are
trades
Response
that
series
not
RTM
2009
(Pl.' s
reported
there
accounting
the
met
Q13
of
Rej')OS
FYlO,
R'I!:M
Ex.
4.)
20,
There
is
that MF Global provided PwC
wit~
49 -
sales
on
188 (i).)
we
PwC's
A
concluded
conditions
accounting
t:
(See Pl.' s Response SE:' .1

Dicarlo Dec.
the
and
56 .1
"at
as
could
PwC
that
for
not
RTM
be
citing Murphy Dec.

evidence,
further,
access to its transactions
and documents without
interfere1:ice.
Employees of both PwC
and MF Global testified that MF nlobal gave PwC free access

ii
to
its
trade
its audit.
records
and othe:r
(Pl.' s Response 56 .1
Additionally,
there is
information necessary
for
1 195.)
evi~ence
in the record that may
!'
support
reasonable
finding
that
MF
Global
executives
believed in good faith that salej accounting was the correct

J(j
form of accounting for the Eunh RTMs.

~'.)
Steenkamp testified
"
that he believed that sale accoi,1nting for MF Global' s Euro

i~
RTMs was proper in 2010 and 2011; and that he still believed
so at the time of deposition.
'(Def.' s
56 .1
138.)
In an
email exchange between Rayan am:: Sear, Rayan wrote that she
believed
the
MF
Accounting
accounting
was
"strong"
review the
conclusion.
!3roup' s
but
position
::onf irmed
(DiCarlc
Dec.
that
Ex.
30.)
on
PwC
Sear,
sale
should
when
asked whether her intent in preparing the January 2010 Memo

r:
was "to be as accurate as

such was her intent.
[she]
(Dicarlo
could
De~.
." affirmed that
Ex. 21 at 128:25-129:6.)
The Court thus concludes t:iat the record presented by

the
Plan
finding
Administrator
that
MF
Global
could
support
develofed
reasonable
preliminary
jury
conclusions
about sale accounting in good f;ai th and consistently asked

PwC to review its conclusions.
-
50 -
3.
The Litigation TrusteefAction
As
was
the
case
in
its
motion
to
dismiss,
PwC
additionally maintains that in flari delicto applies because

"
'(
MF Global' s
litigation position in this action -
laid out
in the Litigation Trustee's nm- settled claims against MF

Global' s former officers 11
the
sale
accounting
Litigation Trustee,
in
the
shoes
officers'
of
- -
cor:flates the RTM Strategy and
decision.
PwC
that
the
( 1)
who like the Plan Administrator stands
the
defunct
implementation of
#irm,
thE;:
i,
tied to MF Global's use of
sal~
allegations
to
are
argues
sufficient
~I
has
RTM
alleged
Strategy was
accounting,
permit
that
an
in
and
closely
(2)
pari
the
these
delicto
i,
defense.
(PwC Mem. at 9.)
12
At the motion to dismiss phase,
Nader Tavakoli, as Liti at ion Tru ee of the MF Global Liti at ion

Trust v. Corzine, et al., No. 13-01333 (S.D.N.Y. Bankr. Sept. 16, 2013)
("Litigation Trustee Action") . The Li igation Trustee Action reached a
settlement agreement on July 6, 2016 as part of a global settlement
among the Trustee, the Commodities Cus~omer Class, and former MF Global
officers and directors and is set forJa fairness hearing by this Court
on September 16, 2016. (See
Dkt. No. l:fOB,
11 Civ. 7866.)
-I
11
r:
PwC argues that the Litigation~ Trustee's allegations in the

Litigation Trustee Action constitute .. udicial admissions by MF Global.
(PwC Mem. at 12 n.12.) Although the econd Circuit has not definitely
ruled on the matter, "the general r le seems to be that a judicial
admission only binds the party
kes it in the action in which it
is made, not in separate and subse
nt cases." Am. Tissue, Inc. v.
Donaldson, Lufkin & Jenrette Sec.
or ., 351 F. Supp. 2d 79, 96
(S.D.N.Y. 2004); see also Hausler v.
Mor an Chase Bank, N.A., 127 F.
Supp. 3d 17, 37 (S.D.N.Y. 2015) (noti
that judicial admissions in one
case may be treated as evidentiary ad issions in another) . Even if the
Court were inclined to consider the p adings in the Litigation Trustee
action as evidentiary admissions, th allegations are insufficient to
establish in pari delicto for the reas~ns discussed herein.
12
- 51 -
the Court was not persuaded that. the RTM Strategy was "the
t:
same voluntary, unlawful conduct. at issue in this lawsuit."

MF Global, 57 F. Supp. 3d at 212
PwC now argues that the tLere is sufficient evidence
in the discovery record to support a
conclusion that the
sale
accounting
advice
indistinguishable
cites
the
expert
Administrator's
("Mordecai")
states
that
from
was,
the
:ts
RTM
reports
causation
alleged
accounting
MF
Strategy.
PwC
presented
by
.expert
(PwC Mem. at 13-1).}

sale
by
incentive
to
increase
[Euro.
appearance
of
increased
recur:::-ing
principally
the
David
RTM]
to
MF
Mordecai
Global
exposure
revenue
Plan
Mordecai
In his report,
"presented
Global,
with
for
the
the
reduced
PwC argues further that MF Globa:f

is judicially estopped from
contesting misconduct by former MS Global officers because the
Litigation Trustee prevailed on thoselofficers' motion to dismiss. See
In re MF Global Holdings Ltd., 507 B.~. 808, 811 (S.D.N.Y. 2014). The
Court will not deem the Plan A inistrator's claims judicially
estopped. Judicial estoppel "applies o ly if the party against whom the
estoppel is claimed actually obtaine a judgment as a result of the
inconsistent position." Merrill L nch, Pierce, Fenner & Smith, Inc. v.
Georgiadis, 903 F.2d 109, 114 (2d Ci
1990). The Litigation Trustee
Action was voluntarily dismissed pu uant to a settlement, and the
denial of the motion to dismiss, wit ut findings of fact specific to
the issues in this case, is not a bas,s for estoppel. Estoppel applies
only when a party's current position s "clearly inconsistent with its
earlier position." New Hampshire v. M 'ne, 532 U.S. 742, 750 (2001). As
discussed further in this Decision an Order, the pleadings and filings
in the now-settled Litigation Truste
Action did not relate to the
specific claims regarding MF Global' f~ sale accounting policy in this
case.
- 52 -
leverage
points
ratios.
to
Trustee
an
in
that
decisions
to
Steenkamp
add
more
The
Court
by
RTM
positions
c'..oing
in
PwC also
32.)
the
Action
,"closely
resulting
leverage,
financial reports."
Trustee
in
90
was
and
fl
Ex.
n\isponse
Litigation
revenue,
Global's]
Dec.
interrogatory
the
position
generate
(Mordecai
fl
Litigation
stating
involved
to
in
the
artificially
"concealed
so,
its
materially
[MF
misleading
(PwC Mem. at 13; Murphy Dec. Ex. 104.)
is
not
persu!ided
that
the
Litigation
F'
Trustee's
allegations
regarding: the
~
RTM
Strategy bar
the
Plan Administrator's professional malpractice claim against

):
PwC
pursuant
to
in
pari
__
deJ[:icto.
_,_.
~!
Litigation Trustee action were,

July 2014 Order,
allege
related to
intentional
The
claims
in
the
as this Court noted in the
th;~
wrongdoing!
RTM Strategy and did not

specific
the
to
sale
accounting decision. The Court remains unpersuaded that the

facts
related
decision are
to
the
RTM
so materially
Stirategy
and
the
ind~.stinguishable
accounting
as
to compel
'"
the conclusion that a claim on the
basis of the former also
jr:
constitutes a
Court
to
claim on the
apply
-in pari
bafi:is
delict;o
of
at
the
the
latter.
summary
For
the
judgment
])
stage,
the pleadings and undispf..ited facts presented in the

~
course of litigation must establish intentional wrongdoing

-
53 -
by
the
See,
plaintiff
~'
Litig.,
10,
2015
WL
is
3ubject
the
of
03-MD-1529,
inferences
in
in
&
at
*10
1,
reconsideraticjn
!'
(S.D.N.Y.
268846
of
Sec.
2014 WL 6982140,
2014) ,
application
denied,
delL:to
(S.D.N.Y.
03-MD-1529,
(denying
2015)
because
fa~or,"
Derivative
No.
21,
--~
Plaintiff's
litigation.
the
In re Adelphia Commc:ns Corp.
No.
Dec.
that
all
"drawing
defendant
failed
to
in
fraud
on
Truesdell,
Roth
&
!!
sufficiently
show
behalf
corporation) ;
of
corporate
a'.: tor
engaged
Waltker,
--1
Associates,
Inc. v. Globeop Fin. Servs. LLC, No.
600469/09,
11
i1
2013
WL
8597474
at
*12
(N.Y.
Sup.
Ct.
May
27,
2013)
(applying in pari delicto where management "as established

on the pleadings" engaged in wrongdoing assisted by outside
)'
advisors).
The pleadings and all
fac1;:
discovery completed prior
to settlement in the Litigation Trustee Action pertained to

the RTM Strategy,
points
to
complaint
designed
the
profitability
allegation
that
and
not to the sa ,le accounting decision.
MF
Global
implemented
through
foreign
debt."
mention
in this
(PwC
in
eng<::,ged
l~
to
highly
Mem.
the
prop
Litigation
in
"a
up
leveraged
at
12.)
statement of
Male
- 54 -
There
PwC
Trustee's
scheme
[MFG' s]
apparent
transactions
is
accounting
no
in
explicit
forming
any
aspect of the scheme referred to. But PwC' s implication is

that this language could be read as asserting that in fact
!
sale
accounting
was
an
indi j;tinguishable
part
of
MF
"
Global' s
wrongdoing
for
the pu:::-poses
With little else to go on,
of
in pari delicto.
for the Court to accept PwC' s
theory would require it to make; a giant factual leap,
not
1!
just
construing
claim
that
i?articular
'
subject to different interpreta:=-ions,
language
may
be
but actually writing
~!
into the text a provision that j;t does not clearly express.
!~
In deciding this Motion,
the Court is required to draw all

v
i:
inferences in the Plan Administ;::-ator' s
favor;
to that end,
1:
the
Court
action
declines
alleged
to
infer
tnat
intentional
the
wrongful
Litigation
sale
Trustee
accounting
treatment of the RTM trades by t:1e

MF Global officers.
i
Additionally,
Mordecai's
expert
report
while
relevant to the causal link bet\ieen sale accounting and the

RTM Strategy - - does not
Plan
Administrator's
accounting
and
conclu":~i vely
litigatiCjn
the
RTM
demonstrate that the
position
Straitegy
f'
is
that
sale
the
same
constitute
f]
intentionally wrongful scheme.

not deny that the sale
;rhe Plan Administrator does
accountirJ~g
decision was a key factor
fu
driving
contrary,
the
the
RTM
Strategy.
link
between
U1.ee
-t:-
PwC's
- 55 -
Opp.
at
approval
13.)
of
On
the
the
sale
S~:rategy
accounting policy and the RTM

Global' s
causation argument.
Tbe
is a key part of MF
Plan Administrator seeks
to prove that the RTM Strategy was dependent on treatment

of
the
that
RTM
trades
PwC's
under
approval
sale
of
accounting
such
principles,
professional
practice
permitted MF Global to undertake the doomed strategy.

Although
PwC
allegations
looks
to
regarding
cast
the
causation
as
thf:~
implicating in pari delicto,
Plan
a
and
(Id.)
Administrator's
litigation
position
Court will not infer such
ji
'litigation position'
where
it
is
not
manifest
in
the
Litigation Trustee Complaint or iiscovery evidence.

4.
DTA and Valuation Alloi,.,,.ance

~
PwC' s in pari delicto argu1i\1ent as to the deferred tax

f
asset
and
valuation
allowanc1!
suffers
from
the
inadequacy as its argument rega,cding sale accounting.
same
With
the benefit of discovery PwC haf; presented evidence that MF

i
i
Global' s
tax
conclusion
Global
that
would
However,
department
it
was
realize
PwC has
not
was
i.1volved
"more
its
likely
DTAE:
in
in
the
than
the
March
not"
upcoming
2011
that
MF
period.
establist4l:ed any undisputed material

ft
facts
that
wrongdoing
would
in
the
show
MF
Glol:>al
DTA
engaged
in
intentional
determj:nation such that

~"
delicto would bar the Plan Administrator's claims.
-
56 -
in
pari
PwC points
reasons
Fiscal
why
Year
to MF Global' s
draft memos
valuation
allowaince
In
memos;,
2011.
the
was
MF
outlining the
not
warranted
for
Global
documents
its
{r
w~re
conclusion that recent losses
due to "one-time unusual
charges" and that the firm would; be able to realize its DTA
with the benefit of
tax planni;.1g in the
future.
(Dicarlo
ft
Dec.
Ex.
There is evideince that those memos,
111.)
like
accou~1ting
the memos discussing sale
discussed supra,
were
jr;
drafted internally by MF Global,: employees and sent to PwC

~
for
feedback
and
bef,:)re
revision
'
MF
Global
finalized
li
decision.
Not only did PwC review

the memos,
'i
it provided
t1
substantive
suggestions
regardrLng
possible
tax
planning
strategies that MF Global could take to realize its DTA in

future
reporting periods.
Gallaigher,
~
for
instance,
at one
l~
point emailed another PwC emplo),ee asking whether MF Global

,,
could not "argue as a tax plann:i,ng strategy that they could

i~:
move
down the
yield curve
(Dicarlo Dec.
Ex.
incorporated
PwC's
105) .
to
3ay 10-30 years US Bonds?"
Later e1,nails showed that MF Global

~i
'
initiatives"
language
into its memo.
regarding
(D:fCarlo Dec.
'
"tax
planning
Exs.
107,
111.)
that
MF
Global
f'f
PwC
presents
intentionally
no
facts
tendinc:r
-~~
provided
to
wr0111g
show
information
to
or
1'.
intentionally misled PwC.
TherE :f ore,
1
f'
57 -
PwC has
not met
its
burden at
bars
MF
this
stage
Global' s
to demons :rate that
in pari delicto
claim
as
ti>
the
valuation
allowance
decision.
For the reasons stated abcve,
!~
;,i
that
triable
affirmative
issues
defense
of
of
fact
in
the Court is persuaded
exist
pa:ti
as
to
delicto
whether
bars
the
the
Plan
Administrator's
professional
ma!:lpractice
claim.
The
Court
&
declines
to
grant
summary
j u~:gment
to
PwC
on
in
pari
delicto grounds.
B.
CAUSATION
1.
Sale Accounting
Questions of causation are; ordinarily reserved for a

finder of
fact,
and on a moticin for summary judgment the

1:
moving party bears the burden
o~
showing that no issues of
material fact exist and that it is entitled to judgment as

a
matter of
law.
See Vera v.
Citibank N .A.,
No.
00
Civ.
1383,
v.
2001 WL 619379,
Skid Roe,
Inc.,
at *2 {S.t.N.Y. June 6, 2001); Packer
938
F.
Supp.
f;
193,
196
{S.D.N.Y.
1996)
{"Issues of proximate cause are normally questions of fact

for the jury to decide,
unless the court concludes that a
reasonable jury could reach onliY one conclusion.");

v. Hilton Int'l,
1992)
Inc.,
797
F.
E1upp.
296,
299-300
Perrin
(S.D.N.Y.
{"Although questions of pfroximate cause are normally

'.:
- 58 -
questions
of
fact,
court
may decide
that
reasonable
f:
jury can reach only one conclusi:on, and decide the issue as
a matter of law.").
The question of whether the series of events leading
!:
up
to
break
MF
Global' s
collapse
a1:e
the
chain of
causation
superseding
:1.n
relation
i:
causes
that
to MF Global' s
malpractice claim against PwC iel. sharply disputed.
(See PwC
Mem.
at
the
RTM
Strategy was
(PwC Mem.
at 15.)
largely on
would
Opposition at
15-17,
accounting
contingent
PwC argues
on
j:
sale
PwC relies
1'
deposition
undertaken
treatment.
the
PwC
testimony
that
Strategy
R~!'M
ci te:a
Corzine' s
that
accounting.
In support o:;: this position,
Corzine' s
have
not
First,
2;3.)
MF
Global
regardless
testimony
that
sale accounting "wasn't a dri veir of why we got there"

"certainly wasn't a
Ex.
detriment"
3 at 1147: 21-1148: 22.)
for the firm.
of
but
(Murphy Dec.
Cor:;>ine also testified that MF
Global "took the [Euro RTM] pos:::tions to add to the revenue

j::
(
of
MF
Global."
(Def.'s
56.1
75.)
PwC
also
cites
Steenkamp's response when asked,whether the RTM trades were

~
executed for
the purpose of bqoking
income up front:
"My
understanding
was
not
that
it
was
for
sales
accounting
treatment.
Sales accounting trei3.tment was the required way
59 -
of
actually booking
the
trades."
(Murphy Dec.
Ex.
11
at
703:12-21.)
The
Plan
in
Administrator,
correspondence
indicating
that
opposition,
MF
Global
points
saw
the
to
RTM
Strategy as a profitable busine(3s opportunity only because

~
of the sale accounting treatmen[:.

8,
Presenting at a November
2010 meeting of the MF Globa] Board of Directors,
the MF
Accounting Group showed a slide listing "Benefits" of Euro

Sovereign
RTMs,
including
t.1e
fact
that
can
"MFG
derecognize these trades under :us GAAP and thus hold them
off
balance
sheet."
Administrator
Global
also
{Dicarlo
cites
Limited Ad-Hoc
held on September
state1;1ents
Global
15,
Dec.
2010
Ex.
by
Corzine
I:1vestment
th<)tt
"RTM
The
69.)
at
Plan
an MF
Committee Meeting
trades
generation for the firm via FI/'J'reasury."
are
revenue
(Dicarlo Dec. Ex.
47.)
his
On September 22,
colleagues
trades
2010,
an MF Global executive advised
that Corzine wa:.i
"looking to do"
"up to the defined risk limits

~
get the upfront P&L for this m01l1th."
Euro RTM
in each country to
(Dicarlo Dec. Ex. 48.)
Additionally,
the Plan Administ!r-ator offers PwC workpapers
stating,
reference
overall
contracts
in
4~
motivation
is
the
to
for
ability
the
Euro
RTMs,
"MF
ente1;ing
into
for
securities
:hese
- 60 -
Global's
these
specific
to
be
de-
recognized from the balance shee;t, and the gain on the sale
of
those
:~ecognized
securities
(Dicarlo
period."
in
testimony,
Ex.
Dec.
the
Court's
in
the
Such
81.)
contradictory
creates
view,
{
current
an
issue
of
material fact requiring determin;ations of state of mind and

~
credibility of witnesses as to \'J"hether the RTM Strategy was

!!
contingent on sale accounting

Second,
RTMs,
RTMs
than
sales,
bankruptcy.
year-long
!l
PwC argues that ths business decision to amass
rather
as
tr 1~~atment.
the
was
(PwC
accountj; ng
~
proxi1~1ate
the
Mem.
strategy
decision
at
to
invest
Ln
points
more
and
sovereign bonds financed with E.uro RTMs"

cause of MF Global' s
collapse,
record
of
cause
PwC
15.).
to
MF
to
the
Global' s
"Corzine' s
more
European
as the proximate
along with downturns in MF
Global's business lines that lee. to reported losses and the

failure to account for customer segregated funds in October
2011.
(PwC Mem.
PwC' s
argument
was
at
22.)
that
simultaneously
There
is
MF Global' s
so
cognitive dissonance
sale
integrcj, lly
1
accounting
linked
with
in
decision
the
RTM
>
F
Strategy as to call for the ap~ip.. ication of in pari delicto

ji
to
bar
the
Litigation Trustee',.s
claims,
but
at
the
same
Strategy but
not
sale
i'
time
distinct
enough
that
the
RTM
accounting treatment of the RTrit trades caused MF Global' s

- 61 -
bankruptcy.
Putting aside this
the
apparent contradiction,
!
Court
finds
that
the
Plan
to
raise
sufficient evidence
Acliministrator
a
genuine
has
presented
issue of material
fact on this point.

The
Plan
Administrator
has
presented
sufficient
evidence to create a material f ~ctual dispute as to whether

$
PwC' s
acts were
"a substantial
responsible causation,
foreseeable
factor
and that; the
anticipated as 'a
or
Glob. Holdings Ltd.,
43 F.
Supp;,,,
in the
sequence of
injury was reasonably
natural
consequence."
3d at 314
MF
(citing Lerner,
318 F. 3d at 123) .
The Plan Adm\lnistrator points to record

~
evidence
including an e-mail
partner,
to
MF
Global
f :~om McGowan,
descrii:>ing
the
PwC audit
foreseeable
liquidity
risks
(Dicarlo
Dec.
Ex.
41)
an
internal
PwC
e-mail
identifying a credit crisis triggering margin calls as the

"biggest risk"
Dec.
Ex.
79);
for MF Global' s
Euro RTM position
(Dicarlo
and its expert re:port by Mordecai testifying

11
that
it
was
accounting
"reasonably
could
result
accumulation of a
large
foret3eeable
!'
in
a;
reach
!'
portfo~io
to
PwC
for
that
yield
of Euro RTMs"
sale
and
an
(Mordecai
Dec.
contains
11. a.) .
The
sufficient
Court
is
persuaded
evidence
raising
that
the
material
record
factual
issues as to whether additional causes cited by PwC -- the

-
62 -
buildup
of
Euro
downgrades,
European market
RTMs,
and margin
the circumstances,
calls
are
volatility,
credit
"extraordinary under
not foreseeatple in the normal course of

1;1
"
events,
or
defendant's
independent
conduct"
Derdiarian v.
er
of
so
as
to
far
"break
Felix Contracting, Corp.,

~
removed
the
from
causal
the
nexus."
51 N.Y.2d 308,
315
(1980) .
Even if at
trial
PwC were; able,

~
as
it might be,
to
1';
establish other potential causels of MF Global' s

~
the
Plan
Administrator
collapse,
"need
1:1ot prove
that the
r
defendant's conduct was the so)le cause of the injuries."
!i
Zerega Ave. Realty Corp. v. Horr(beck Off shore Transp. , LLC,
I,,
513 F. App'x 30,

in
its
collect
July
for
32
2014
(2d Cir.
Order,
damages
business strategy,
20;13) . As this Court observed
the
Plan
attributal;ae
~
Administrator
solely
to
MF
"cannot
Global's
rather than t;-o PwC' s allegedly erroneous

[;
accounting advice."
(July 2014 ')rder at 14.)
complex factual determination
a~;
The resulting
to what harm to MF Global
was caused by the negligent acccj1unting advice and what harm

~
was caused by the RTM Strategy is one for a
factf inder to
resolve.
Finally,
PwC
contends
thavt
ti
sale
accounting
did
not
mislead MF Global about the fin!iancial risks that it claims

tJ
- 63 -
(Pw;: Mem.
led to the firm's collapse.
at 15.)
1~
PwC argues that as a matter of ;law,
Essentially,
an audit client cannot
t~
claim
it
Al though
was
misled
about
PwC presents
not
duty
among
to
the
prevent,
matter of New York
law,
Jdsks
that
is. not
binding on
auditors
persuaded
maljJractice
not
condition.
poor business judgment
Court
financial
cases 13
clieiil.t' s
foreseeable
the
own
number of
this Court stating that a

is
itf:
-~
have
as
that,
claim by an audit
client fails as a matter of law unless the client can show

);
that
the
client
was
misled
about
condition due to the auditor's fi.ailure.

I'
jury could reasonably find trjat the
~
satisfied the elements of a
its
own
financial
(PwC Mem. at 25.) A

Plan
Administrator
pr:;::>fessional negligence claim
by showing that MF Global relied to its detriment on PwC' s

assessment
that
MF
of
sale
Global
accounting
was
treatment,
misled
:iS
to
without
its
own
finding
financial
condition.
PwC
cannot
"af f irma ti VEj.l y
demonstrate
that
reasonable
jury
could
reach
oply
one
conclusion"
as
to
f''
proximate
causation.
Vera
v.
q:itibank
N .A.,
No.
00
Civ.
13 See Maxwell v.
KPMG LLP, 520 F.3d ;713, 716-17 (7th Cir. 2008) ("It
wasnot [the auditor's] duty to givt the company business advice") i
Fehribach v. Ernst & Young LLP, 493, F.3d 905, 910 (7th Cir. 2007);
Johnson Bank v. George Korbakes & Co.J LLP, 472 F.3d 439, 443 (7th Cir.
2006).
;:--
- 64 -
1383,
2001
WL
619379,
jury
could
Because
at
(S.D.N.Y.
*2
reasonab:!.y
June
conclude,
6,
2001).
based
on
the
testimony and documents in this:J. case,

of
sale
buildup
accounting was
of
Euro
RTMs
prox:r.mate
and
of
that PwC' s
cause
MF Global' s
liquidity
the
precipitating MF Global's collafse,
of
approval
issues
these issues cannot be
resolved by the Court on a summa;py judgment motion.

~
2. DTA and Valuation Allowapce

~
PwC
also
seeks
Administrator's
jury
could
summary
DTA claim.
find
that
MF
based
PwC
argues
'
that
failure
Glo~al's
'
on
no
Plan
the
reasonable
to
record
valuation allowance earlier thar1 September 2011 proximately

f
caused MF Global' s
bankruptcy.
(PwC Mem.
at 27.)
Although
the record on this subject is Sc:>mewhat thinner than on the

~
sale accounting decision,
the qourt is persuaded that the

~:
Plan
Administrator
has
present\ed
sufficient
evidence
to
!'::
create a
genuine
issue of matetrial fact. MF Global first

~
announced it was taking a $119 [million valuation allowance
Ii
against the DTA on October 25,

million
loss
for
the
2011,
quarter lending
as part of its $191

September
30,
2011.
Moody's immediately downgraded
:~'1F
Global' s
week later MF Global declared tjp.nkruptcy.
rating,
Turner,
and one
the Plan
ft
Administrator's accounting expe:r::-t,

~
- 65 -
concluded in his expert
report that "the valuation allo'\/rance adjustment in Q2 2012

~
sent
negative
and
prospects"
adjustment
conce11.ning
message
"MF
the
Global
Company's
recorded
have
'3hould
its valuation al:i.owance prior
to
future
to Q2
an
2012."
1:
(Turner Dec.
Ex.
1 , , 405,
409 ..I ) As was the case with the

l
sale accounting decision,
the Pllan Administrator need only

t:
show
that
the
valuation
alldwance
was
"substantial
',.
factor"
in causing the
damages. 14 Lerner,
bankrupt~=Y
318 F. 3d at
filing and the attendant
123.
On this record a
jury
'
could
find
that
PwC's
advice
as
~he
valuation allowance was one of
to
the
factors,
timing
of
the
along with the
sale accounting decision, that ci:i.used MF Global' s losses.

!'
C.
STATUTE OF LIMITATIONS
PwC argues in addition that the three-year limitations
l
period
for
auditor malpractice claims
precludes
the
Plan
Administrator's claims arising ::rom PwC' s audit for Fiscal

I
Year 2010 .
15
The limitations per:!,. od ordinarily runs from the

I
date
the
Waterhouse,
audit
84
opinion
N.Y.2d
535,
is
ssued.
541:
(1994).
Ackerman
The
v.
audit
Price
opinion
" s expert testimony by Mordecai

The Plan Administrator also presef
stating that if a ratings downgra
had happened earlier,
it is
reasonable to anticipate that greater MF Global value would have been
preserved. (Mordecai Dec. Ex. 1 ~ 51.) f
14
'
15
This argument pertains only to t/,1e valuation allowance decision,

since the parties agree that no Euro ~RTMs were accounted for as sales
during Fiscal Year 2010.
1:
- 66 -
for Fiscal Year 2010 was issuec! on May 27,

Complaint
was
filed
March
28, . 2014.
2010,
However,
I]
and the
MF
Global
cites the continuous representatl ion doctrine, which in the

~
context of a client/auditor rel~tionship states that if an
~
auditor
continued
to
provide
work
~until
f:
limitations period does not run

auditor's
work
representation
on
the
audit.
doctrine,
To
on
an
audit,
the
the conclusion of the
invoke
the
continuous
( 1)
plai.ntiff must establish:
tj"
ongoing representation connecteci to the specific matter at
~
issue in the malpractice action,
and
(2)
clear evidence of
an
ongoing,
continuous,
dbveloping
and
dependent
"
(
relationship between the client Land the

v. Ratner, 204 F. Supp. 2d 630, 636
53 F. App'x 161
must
be
(2d Cir.
specific
to
(S.D.N.Y. 2002), aff'd,
2002) , The ongoing representation
the
Magnesium Corp. of Am.,
[auditor] . De Carlo
matt';r
399 B.R.
in
722,
dispute.
749
See
In
re
(Bankr. S.D.N.Y.
2009).
PwC advised MF Global in rj:esponding to an SEC comment
~
letter about its 2010 Form 10-Ki. in June 2011. Although PwC
f;
1,
argues that its advice was in fi3.ct part of the Fiscal Year
2011 audit,
the Plan Administditor presents evidence that

Ii
the work provided on the SEC' st. comment letter was in fact
~
related
to
the
2010
audit.
Mc!Gowan,
l
- 67 -
the
2010
engagement
partner,
participated actively in the response to the SEC
letter,
reviewing multiple draftf;; of MF Global' s responses.

t:
ic
(See Dicarlo Dec.

review
and
Exs.
identify
92,
PwC also
94- )6.)
correctionf!
to
the
continued to
Fiscal
Year
2010
},!
audit of the DTA into 2011.

fact,
(Seq~
-r
Dicarlo Dec. Ex. 112.)
PwC prepared a workpaper .J:.n April 2011 detailing the

~
conclusions it had reached in ttje 2010 audit.

li
Ex.
In
109.)
(Dicarlo Dec.
The record evidence is sufficient to show PwC's

1:
"ongoing
representation"
of
connected
the
to
Fiscal Year 2010 financial statdments.
De Carlo v. Ratner,
204
the
F.
Supp.
2d at
636.
AccorJiingly,
Court will
not
grant
summary
judgment
barrinc:;
the
Plan
Administrator's
claims
arising
out
PwC' s
work
on
the
Fiscal
Year
2010
audit.
D.
CONCLUSION
Based
on
the
summary
judsjment
record,
the
Court
is
fl
gem.~.ine
~
1;
persuaded that there remain

pertaining to the causal
issues of material fact
relatLonship between MF Global' s

~
bankruptcy and PwC's accounting:advice to MF Global in this

~
case,
as well as genuine issue:!s of material fact relating

11
to whether the defense of
in ~ari delicto applies to the
Plan Administrator's claims.
Adcordingly,
1.
~
PwC' s motion for summary judgmer.it.

- 68 -
the Court denies
IV.
014ER
For the reasons stated abovej, it is hereby

ORDERED
that
the
PricewaterhouseCoopers LLP for
Motion
si~mmary
of
judgment pursuant to
Rule 56 of the Federal Rules of: Civil Procedure

46)
defendant
(Dkt.
No.
is DENIED.
The Clerk of Court is diredted to terminate the motion
for summary judgment.
(Dkt. No. :6.)
SO ORDERED.
Dated:
New York, New York

4 August 2016
- 69 -

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Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 1 of 69

UNITED STATES DISTRICT COURT

MF GLOBAL HOLDINGS LTD., AS PLAN

VICTOR MARRERO, United States Disltrict Judge.

auditing work performed by defendant PricewaterhouseCoopers

auditor and accountant

now-defunct brokerage a11d financial

("MF GJ\obal") . MF Global Holdings

Global's claims under the Second Amended and Restated Joint

(1) approving MF Global's off-ballance-sheet accounting for

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 2 of 69

valuation allowance against its deferred tax asset

:::>rder dated July 9,

("July 2014 Order," Dkt. No. 18.;

By Order dated August 27,

but again declined ti> dismiss

Order," Dkt. No. 21.)

summary judgment pursuant to Rule 56 of the Federal Rules

subsequent harm to shareholders.

that the Plan Administra::or cannot show that PwC' s

( "PwC Mem. , " Dkt.

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 3 of 69

("Reply," Dkt. No.

filed under seal).

reasons detailed below, the Court DENIES PwC's Motion.

(MF Global II),

familiarity with these

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 4 of 69

record is more thoroughly develO'\)ed

and broker-dealer firm

Ch:.. ef Accounting Officer.

March 2011, Steenkamp took over the role of Chief Financial

role as Chief Accounting Officer,

Steenkamp was responsible

Group, Margaret Sear ("Sear")

Accounting Policy Manager

until July 2011.

the MF Accounting Group until March 2011,

Chief Executive Officer.

after which time

(Def.'s 56.1 ~ 71.)

PwC began performing indeper:ident audit services for MF

Global in 2007. During the time lelevant to this action, MF

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 5 of 69

preparation for MF Global' s

:he engagement letters,

(Def. 's 56. 1 at

Emmett r.,urphy dated Jan.

by the Public Company Accounting Oversight Board ( "PCAOB") ,

including obtaining "reasonable c:!.ssurance about whether the

Fiscal Year 2010

engagement partner with the res1:1onsibility for work on MF

Fiscal Year 2010 audit.

was the PwC engage::nent partner.

Case 1:14-cv-02197-VM Document 53 Filed 08/05/16 Page 6 of 69

PwC issued an audit report .:or Fiscal Year 2010 on May

which was included in MF Global' s

10-K filed with the United States Securities and Exchange

and an audit report for Fiscal

2011 on May 19,

which was included in MF Global's Form 10-K filed with the

act as MF Global's independent a-,iditor,

financial reports and responding to MF Global' s

for bankruptcy on October