MF Again

The MF Global trustee filed his lawsuit against
Jon S. Corzine and other former MF Global executives.

But the complaint itself, while quite well done, makes for
rather strange reading upon further reflection.

First, note that this is a breach of fiduciary duty action
against officers quo officers, whereas the more typical Delaware fiduciary duty
action is against the board.  Indeed,
one can almost forget that MF Global had a board when reading the complaint.

For example, we are told that “Defendant Corzine was ultimately
responsible for the Company’s administrative, back office and technology
functions, including the adequacy of the Company’s risk management and internal

Sure, but where was the board? Certainly they had some responsibility here
too, no?

The move to sue Corzine as an officer (he could have also
been sued as a director) may be an attempt to sidestep Delaware corporate law
that largely
directors from duty of care
. I have to hedge a bit on
this point, however, since there is some confusion as to what type of business
entity MF Global actually was:  the
complaint refers to the holding company as a limited liability company, whereas
the last 10-K suggests it
was a Delaware corporation

But in any case, it becomes clear that the complaint is
mostly about colossally poor management at MF Global. The complaint makes a somewhat feeble attempt
at making these facts into a duty of loyalty claim, but really loyalty claims
are about conflicts of interest or self-dealing, and the facts alleged instead involve
sloppiness and recklessness.

And ultimately Delaware law makes it particularly difficult
to sue managers for subpar management

By and large, Delaware would prefer to leave issues of
managerial quality to the markets and shareholder voting. The Delaware courts, the key enforcers of
fiduciary duties, don’t see themselves as good evaluators of managers, and
worry about the risks that come from doing such an evaluation with the benefit
of hindsight.

The risk of hindsight basis are particularly strong when
poor management seems to have run a company into the ground, as happened here, but
to some degree it's a risk that shareholders and long-term creditors always

The challenge for the court will be to see if this case
involves something more. Only that
“something more” can really be the subject of recoveries against officers.

The complaint does not paint a flattering portrait, and will
likely have an influence on these managers’ future ventures.

But I’m not sure the complaint will provide too much
additional recovery to the understandably frustrated creditors.