UPDATE: MF Global Trustee Seeks More Payments To Commodities Clients
March 15 2012 - 3:05PM
Dow Jones News
The trustee overseeing the liquidation of MF Global Holdings
Ltd.'s (MFGLQ) brokerage Thursday proposed additional payments to
commodities clients of the failed broker-dealer, including the
first to those with accounts frozen on non-U.S. exchanges.
The trustee asked the bankruptcy judge overseeing MF Global to
approve a further distribution of up to $685 million, adding about
10 cents on the dollar to the 72 cents already recovered by U.S.
customers who held funds on deposit.
James Giddens, the trustee unwinding MF Global's U.S. brokerage
business, has recovered about $5.3 billion of the $5.5 billion to
$6 billion in U.S. customers' segregated funds held at the
brokerage.
To date, he has returned about $3.9 billion to customers via a
series of bulk transfers arranged by CME Group Inc. (CME) in the
weeks following MF Global's demise last year.
The latest request includes around $600 million held as
segregated assets for clients trading on U.S. exchanges and another
$50 million to so-called 30.7 customers related to U.S. customers
trading overseas. An additional $35 million of customer property is
earmarked to a domestic delivery class, which Giddens identified as
physical customer property that has been or will be reduced to
cash.
"As the estate has continued to mature, the trustee made a
determination that an additional distribution was warranted," said
Giddens's spokesman, Kent Jarrell.
The approximately $700 million in additional distributions will
cut in half the $1.4 billion reserve Giddens initially had set
aside for U.S. commodities customers.
The trustee is required to maintain funds in reserve because a
number of MF Global overseas customers--including those in U.K. and
Hong Kong--could have valid claims against the U.S. brokerage.
Indeed, KPMG, which is MF Global's U.K. insolvency
administrator, have filed some $257 million in claims against the
U.S. estate related to foreign commodities customers' positions and
another $92.5 million involving foreign-exchange transactions.
Although those affiliate claims have been lumped in with the
estimated $5.5 billion to $6 billion MF Global was to have
segregated for U.S. customers, no distribution has been made.
"We haven't paid U.K. entity a penny," Jarrell said.
Representatives for MF Global's U.K. insolvency administrator
and the Chapter 11 trustee declined to comment.
An estimated $1.6 billion in client assets remain out of reach,
with some money missing and other funds held up by proceedings in
other countries.
"If [the trustee] doesn't recover anymore, the shortfall is
probably going to be right in the range of the high 80s or perhaps
the low 90s [in cents on the dollar], in terms of recovery," said
Vince Lazar, a partner with law firm Jenner & Block, which is
representing CME in the bankruptcy proceedings. Lazar was speaking
Wednesday at a futures industry conference in Florida.
In all, about 25,000 commodities customers have filed claims
with the trustee. The unaccounted-for funds include $900 million
linked to U.S. commodity-trading accounts as well $700 million tied
to foreign-based accounts, believed to be in the U.K.
Distressed investors have been offering some MF Global U.S.
customers up to 90 cents on the dollar for their so-called 4d
claims, betting Giddens can boost their recoveries by clawing back
assets from MF Global's U.K. estate and others while fending off
claims from his rivals, which include MF Global's U.K.
administrators and the holding company's Chapter 11 trustee, Louis
Freeh.
Still, Giddens faces serious challenges in getting back the
remaining funds. Although he recently said he traced a majority of
the transactions made by MF Global during its final week in
October, he noted recovering the cash could prove difficult and
will take time.
MF Global collapsed Oct. 31, 2011, revealing the gap in client
money the firm was supposed to have safeguarded under U.S.
commodity-market law. Regulators and investigators have yet to
provide a full explanation for the shortfall or where the money
wound up.
Giddens is winding down MF Global's broker-dealer business under
the authority of the Securities Investor Protection Act, which
governs the liquidation of failed brokerage firms.
-By Doug Cameron and Patrick Fitzgerald, Dow Jones Newswires;
312-750-4135; doug.cameron@dowjones.com
--Jacob Bunge contributed to this article.
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