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The city’s top lawyers want New York’s massive pension funds to lead a lawsuit against Jon Corzine and his bankrupt MF Global investment firm to recoup millions of dollars in losses, The Post has learned.
But the Law Department, which made its recommendation to the five pension boards earlier this week, warned in a bombshell memo that the legal strategy to recover the up-to-$9.6 million they lost could be jeopardized because Comptroller John Liu had previously hired two of MF Global’s top officers.
The department recommended that the pension systems join class-action suits already filed against MF Global, Corzine and other company officials.
At least nine suits have already been filed in Manhattan federal court.
The lawsuits are expected eventually to be consolidated into one securities action.
And the Law Department wants the city to ask to be named chief plaintiff.
“Significant recoveries can be obtained from individual defendant officers and directors and their respective liability-insurance policies . . . and possibly the company’s auditors,’’ the memo said.
The memo, dated Monday, said the city’s five retirement funds have “strong claims against multiple defendants,’’ including Corzine, who was MF Global’s former chief executive and a former New Jersey senator and governor.
But there’s a major problem.
Larry Schloss, the officer who oversees the investments of the city’s $120 billion pension fund system for the city comptroller, served on MF Global’s board of directors before Liu hired him in January 2010, the memo said.
And Liu’s office made Kevin Davis, MF Global’s CEO for a decade, the head of commodities in the comptroller’s Bureau of Asset Management.
The recently hired Davis stepped down from the Comptroller’s Office when it was revealed he had worked for MF Global.
The memo says other investors “at the very least” will argue that Schloss and Davis will be called as witnesses in the MF Global case, “thus creating a conflict of interest for the Funds as a potential lead plaintiff.”
It added that Schloss’ prior employment at MF Global “overlapped somewhat” with the likely time period covered in the class-action litigation.
Given the troubling conflict, Schloss, Liu’s chief investment officer, has been forced to recuse himself from the case.
Despite the conflicts, the legal advisers said the city pension funds should fight for lead-plaintiff status.
And Liu concurred with the assessment, the memo said.
“Notwithstanding these potential issues,” the memo said, “the Comptroller’s Office and the Law Department opine that this is an important case with strong claims, and that the Funds should consider seeking appointment as lead plaintiff.”
Liu’s office issued a general statement that ducked the Law Department’s concerns about staff conflicts in the MF Global case.
“We are unable to provide comment on any issue that may relate to potential litigation. However, the city Pension Funds have a strong track record of successful litigation on behalf of our members and will continue to work to ensure that companies in which we invest are held accountable,” said Liu spokesman Michael Loughran.