MF Global Trustee Seeks More Payments To Commodities Clients
First Published Thursday, 15th March 2012 05:38 pm - © 2012 Dow Jones
By Doug Cameron and Patrick Fitzgerald
Of Dow Jones NEWSWIRES
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 existing recovery target of a 72 cents for funds held by customers on deposit with the failed firm.
James Giddens, the trustee unwinding MF Global's U.S. brokerage business, has recovered about $5.3 billion of the nearly $6 billion in futures 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.
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 any more, the shortfall is probably going to be right in the range of the high 80s or perhaps the low 90s, 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 that actually recovering the cash could prove difficult and will take time.
MF Global collapsed Oct. 31, 2011, revealing the gap in client money that 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; email@example.com
-Jacob Bunge contributed to this story.