If the judge likens the events surrounding the collapse of your company to a "massive train wreck," is moving to dismiss the related securities class action worthwhile? That was the question facing the defendants in the MF Global Holdings case and the court did not like their answer.

In In re MF Global Holdings Ltd. Sec. Litig., 2013 WL 5996426 (S.D.N.Y. Nov. 12, 2013), the court started out by noting that its "train wreck" analogy "was meant as a hint giving a form of guidance." The case involved the alleged disappearance of $1.6 billion from customer accounts that was later found to have been "improperly commingled and used to cover questionable company transactions." Under these circumstances, the court believed that the parties would "turn to the search for relevant evidence," but instead was surprised to find that the defendants "seem convinced that no one named in this lawsuit could possibly have done anything wrong." Indeed, the defendants' contention that all twenty-three claims against them should be dismissed must mean that MF Global's collapse was "the fateful work of supernatural forces, or else that the explanation for a spectacular multi-billion dollar crash of a global corporate giant is simply that 'stuff happens.'"

The court went on to reject the motion to dismiss in its entirety. However, the court did make at least one legal ruling in favor of the defendants. A key issue in the case is whether MF Global's statements about its deferred tax assets were false or misleading. Deferred tax assets are losses, credits and other tax deductions that may be used to offset taxable income in the future, but they can only be recorded as assets on a company's balance sheet to the extent the company determines it is "more likely than not" they will be realized. The court found that under Second Circuit precedent, "statements about the realization of the DTA are statements of opinion, not of fact." Accordingly, the plaintiffs ultimately will need to prove that these statements were both false and not honestly believed at the time they were made.

Holding: Motion to dismiss denied.

Quote of note: "In evaluating the application of law that Defendants argue would allow the outcome that they seek at this stage of the litigation, the Court's assessment may be simply stated: It cannot be."