The trustee overseeing the liquidation of MF Global Inc. has
resolved all but 200 of the 28,000 claims filed by the failed
brokerage's commodities and securities customers and is at a
"critical stage" in talks to resolve his differences with his
counterparts in the U.S. and U.K.
Trustee James Giddens "has been involved in intense discussions"
with Louis Freeh, who is overseeing the liquidation of MF Global's
holding company, and KPMG, MF Global's U.K. insolvency
administrator, during the last several months for the return of
customer property and to eliminate their competing claims.
"The Trustee does not wish to understate the difficulties and
complexities of some of the issues involved," said Mr. Giddens's
lawyers in an interim report filed Thursday night with the U.S.
Bankruptcy Court in New York. "He believes, however, that a
pragmatic, constructive approach on the part of all the parties and
professionals involved has allowed these discussions to enter an
advanced and critical stage."
Mr. Giddens has been sparring with the MF Global's U.K.
administrators over $700 million that he says belongs to U.S.
customers. The dispute hinges on whether those U.S. customers who
did business in foreign markets and were supposed to have money in
so-called segregated accounts can tap the assets held in a general
pool of funds for U.K creditors. KPMG says $405 million should be
returned to the U.K. for its commodities and securities
customers
He has also been battling with Mr. Freeh, the former director of
the Federal Bureau of Investigation who is overseeing the Chapter
11 case of MF Global Holdings Inc. (MFGLQ).
"The principal impediments to immediate further interim
distributions to these customers, as well as to securities
customers, are the large amount of 30.7 Property tied up in the
U.K. and the hundreds of millions of dollars in claims filed by the
Chapter 11 debtors and MFG U.K.," said Mr. Giddens.
The reference to the so-called 30.7 property concerns the
property of U.S. customers trading overseas whose assets were
frozen at the U.K. unit when MF Global collapsed.
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 some $4.9 billion to customers. Despite
the return of that money, he still estimates a $1.6 billion
shortfall in customer accounts.
Mr. Giddens said he expects MF Global's securities' customers
money will be paid in full if talks with Mr. Freeh and KPMG, which
are at an advanced stage, are successful. However, he cautioned
commodities customers that "even successful resolution of these
negotiations would not yield a one hundred% distribution of allowed
net equity claims."
For that to happen, Mr. Giddens said, "would require substantial
success in the pending litigations."
That litigation, in addition the disputes in the U.K., includes
a civil suit against former MF Global Chief Executive Jon S.
Corzine and other former executives. In that case Mr. Giddens
joined with a group of investors suing Mr. Corzine and others for
breaching their fiduciary duty to MF Global's brokerage
customers.
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.
MF Global, led by former New Jersey governor and Goldman Sachs
Group Inc. (GS) Chairman Jon S. Corzine, collapsed in October 2011
when customers panicked over the New York firm's large bets on
European debt. The firm's collapse into bankruptcy exposed a $1.6
billion shortfall in U.S. customer accounts.
MF Global's top executives, including Mr. Corzine, have denied
any wrongdoing in connection with that shortfall. While investors
have filed a number of civil suits against the firm's top brass no
one has been charged with criminal wrongdoing.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to )
Write to Patrick Fitzgerald at patrick.fitzgerald@dowjones.com.
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