Jon Corzine, the former head of MF Global Holdings Ltd., masterminded a scheme to inflate earnings that led to the eighth-biggest bankruptcy in U.S. history, according to an updated lawsuit filed by a trustee for the failed futures broker.

Corzine, a former Democratic governor and senator from New Jersey and once a co-chairman of Goldman Sachs Group Inc., was sued in April by Louis J. Freeh, then the trustee, along with senior executives Bradley Abelow and Henri Steenkamp.

A new litigation trustee yesterday filed an amended complaint in Manhattan bankruptcy court saying that not only did they dramatically change the company’s business plan without addressing weaknesses, but their actions rose to the level of a “scheme.”

MF Global’s bankruptcy can be “traced to a scheme” that Corzine, Abelow and Steenkamp “designed and implemented to prop-up the company’s apparent profitability through highly leveraged transactions in foreign debt,” said the new trustee for the failed holding company of the brokerage, Nader Tavakoli.

Shortly after the three took control of the company, they put it on a high-risk path that devastated its liquidity, depleted customer funds and ultimately caused its failure, Tavakoli said.

Leveraged Investments

The scheme involved making highly leveraged investments in European sovereign debt using repurchase-to-maturity financing transactions. These allowed the company to inflate earnings by immediately booking income even while it took on future liabilities from the instruments, according to the new complaint.

Each such transaction put the company in further peril, and the executives increased the number of transactions near the end of financial quarters to inflate earnings and prop up the company’s stock price, according to the complaint.

The parent company of brokerage MF Global Inc. filed for bankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most-indebted nations. The company listed assets of $41 billion and debts of $39.7 billion.

Corzine has said there is no basis to the claim that he breached his fiduciary duties or was negligent, according to a statement from a spokesman, Steve Goldberg, in April.