The trustee unwinding MF Global Holdings Ltd.'s (MFGLQ)
brokerage wants to recover $20 million for customers from a
commodities firm that extended a line of credit to MF Global in
2002.
But the commodities broker, an affiliate of Koch Industries
Inc., says there is one big problem with that: Neither the trustee,
James W. Giddens, nor MF Global ever accessed any of the $20
million.
In a Thursday filing with U.S. Bankruptcy Court in Manhattan,
Koch Supply & Trading LP said the $20 million letter of credit
was money that MF Global could access only if Koch breached its
customer agreement with MF Global. As the money was never accessed
and the agreement expired at the end of 2011, Koch says it
shouldn't have to pay anything.
Koch did file a customer claim with the brokerage in April, but
did that just in case the trustee recovered any money for it
related to the letter of credit.
But in June, Koch said, the trustee deemed the expiration of the
credit line an unauthorized transfer of property, meaning Koch owes
$20 million to the trustee. The firm is suing Mr. Giddens, seeking
a declaration from a judge that it doesn't owe anything.
"The Trustee has alleged that the expiration of the letter of
credit was an unauthorized post-filing date transfer" of customer
property," Koch said in its filing, "with a value equal to the full
face amount of the letter of credit--$20 million.
Kent Jarrell, a spokesman for Mr. Giddens, said, "We're trying
to work out the disputes with the claimants. We are working on our
formal response to their papers."
Mr. 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. The
liquidation is separate from the bankruptcy case of MF Global
Holdings, the parent company, which filed for Chapter 11 protection
last fall. That estate is now being overseen by Louis J. Freeh, a
former director of the Federal Bureau of Investigation.
Mr. Giddens has recovered about $5.3 billion of the $5.5 billion
to $6 billion in U.S. customers' segregated funds held at the
brokerage and has returned more than $4 billion to customers via a
series of bulk transfers arranged by the Chicago Mercantile
Exchange in the weeks following MF Global's demise last year.
Mr. Giddens still estimates a $1.6 billion shortfall in customer
funds that should have been matched dollar for dollar by MF Global
in accordance with regulations. Mr. Giddens has said he might
pursue claims against former MF Global Chief Executive Jon S.
Corzine, who oversaw MF Global before and during its collapse.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@dowjones.com
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