Man Financial: Jury To Decide RICO Allegations

| About: MF Global (MFGLQ)
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A bid by Man Financial Inc (MF) for summary dismissal of Racketeer Influenced and Corrupt Organization claims in a suit brought by the receiver of Paul Eustace’s Philadelphia Alternative Asset Management Co has failed, and the allegations will be tried when the case goes to court next month.

Judge Michael Baylson’s ruling was arguably the most significant among a series of decisions on summary judgment motions, most of which were rejected. The trial is due to begin next month, with jury selection set for Nov. 13 and the trial “most likely to start” Nov. 15. An attorney involved in the case said Thursday that, to his surprise, “this date looks pretty solid now. These things can always change, but I can’t see too much getting in the way of this.”

In an eight-place analysis of the RICO claims, which, if successful, would make the futures brokerage liable to treble damages, Baylson acknowledged facts supporting both the receiver’s complaint, and the defendants’ arguments. (Man Financial Inc demerged from its former parent, the UK-based Man Group plc (EMG:L) and is now MF Global Ltd [MF: NYSE]).

Plaintiff asserts that the racketeering predicate acts are wire fraud and that there is evidence of record to show sufficient incidents to constitute an enterprise, a pattern, the requisite element of continuity, plus the proximate cause of damages. Defendants correctly state that RICO should not be used to turn a “garden variety” fraud case into a RICO case allowing treble damages. However, the Supreme Court has often stated that if Plaintiff has evidence of the RICO elements, summary judgment is improper.

Dealing with other summary judgment motions, Baylson also declined summary judgment on the receiver’s claims against Man Financial for:

  • Common law fraud, negligence and negligent supervision;
  • Breach of contract; and
  • The ‘in pari delicto’ issue, in which Man argued that the receiver, “standing in the shoes of Eustace, an admitted wrongdoer” could not recover damages as the result of his own wrongdoing, saying that “current law does not support Man’s position.”

He did, however, grant summary judgment for Man on the receiver’s claim of deepening insolvency, and rejected the receiver’s cross-motion on the breach of contract question.

The court has reviewed the other assertions of Man and Gilmartin for summary judgment and finds that defendants are not entitled to summary judgment on any claim other than deepening insolvency.

Who blabbed? Magistrate Judge David Strawbridge, who has held a series of settlement conferences, most recently on Oct. 10, found it necessary to issue an order this week:

Each of the parties and their counsel are reminded of the necessity to keep confidential the content and substance of these conferences and discussions. Should there be any uncertainty, they are hereby ORDERED to maintain that confidentiality and strictly limit the extent of the disclosure of such information to their clients and each other only on a need to know basis [Emphasis in original].

Regrettably, the subject(s) of the judge’s ire have not contacted NakedShorts. However anybody having the benefit of such such disclosures is more than welcome to remedy that oversight.

Every little bit helps: PAAM’s receiver recently announced that it had, as a result of negotiations with the trustee in Paul Eustace's Canadian bankruptcy, obtained possession of approximately $1.3 million from Eustace's Canadian bankruptcy estate. The funds will be added to the receivership estate and will ultimately be distributed to investors.

With a bit of luck, those were $1.3 million loonies, which, at the current rate of debasement of the US currency, should cover Eustace's entire losses by the end of November 2007.

Where’s the CFTC? In filings associated with its IPO, MF Global disclosed that it believed that “the Commodity Futures Trading Commission may seek to cite and fine us” for various, regrettably unspecified, elements of its stewardship of the PAAM brokerage accounts. Given that the CFTC managed to bring charges against Amaranth and Brian Hunter within a few months of that implosion, it’s impudent, but not unreasonable, to ask “What’s taking so long?” It's more than 27 months, or 15 seconds in regulatory time, since the CFTC pulled the PAAM plug.

Perish the thought that the CFTC, the regulatory capture poster child, could be sitting on its files until the litigation is resolved.

And the FBI? Or the Mounties? Anybody with any idea why Paul Eustace, repeatedly characterized by Judge Baylson as an “admitted wrongdoer,” hasn’t yet felt the clasp of cold steel around his wrists and been invited to address numerous felony charges, is invited to contact NakedShorts with relevant information. With the resources being devoted to terrorism detection and prevention, surely blowing up $170 million-odd should merit at least ordinary rendition?