Dec. 7 (Bloomberg) — James Giddens, the trustee overseeing the MF Global Inc. brokerage liquidation, defended a planned transfer of $2.1 billion to U.S. commodity customers after receiving 18 formal objections and 43 letters querying the move.
In the transfer, Giddens would pay out from 80 percent to 85 percent of all assets remaining in his control, keeping $800 million in reserve, according to his court filing today. Two previous payouts to commodity customers totaled about $2 billion.
To deal with many of the objections, which “raise common concerns,” Giddens said he “made some language changes” in a proposed order he will ask the judge to sign approving the transfer. To satisfy administrators of MF Global’s U.K. and other foreign affiliates who objected that the transfer might deplete funds available to pay them, he would make future transfers based on available assets and not ask the judge to let him simply use his own discretion, he said in the filing.
“The trustee believes it would be more prudent, relieve uncertainty, and better inform the expectations of customers to make further bulk transfers, if any, only upon further motion and order of the court based on facts and circumstances and availability of property,” he said.
British Unit
MF Global UK Ltd. said yesterday it has $250 million remaining in accounts at the MF Global brokerage, of which $230 million is in segregated commodity accounts for customers. The U.K. company hasn’t received any money from the trustee of the U.S. brokerage and isn’t in line to get any in the third planned payout of $2.1 billion, the administrators of the bankrupt company said in a court filing.
The judge handling the MF Global brokerage liquidation in New York “must adequately protect” all former customers in any order he signs approving Giddens’s next transfer, they said. The judge is Martin Glenn.
Some customers faulted the transfer because it covered only U.S. customers. The brokerage trustee treats foreign futures customers “differently,” favoring U.S. clients, said RWA Raiffeisen Ware Austria AG, a cooperative agricultural group.
In the filing, Giddens said he had excluded customers whose assets are held in foreign accounts “because virtually all of it is not under the trustee’s control, but rather under the control of MFGI’s foreign former affiliates,” which also are being liquidated in their home countries.
What and When
RWA has asked Giddens what he’s doing to recover the funds from administrators of the U.K. affiliate, and when he might return assets to these customers.
“We are urgently working on responses to all our objectors,” said Kent Jarrell, a Giddens spokesman, in an e- mail.
Creditors of the MF Global parent said Giddens is planning the distribution without explaining why he thinks the funds are customer property or verifying that the customers are entitled to receive the funds.
Paying the wrong people or paying out too much will hurt the bankrupt parent company’s estate, which has claims against the brokerage and owns its equity, MF Global Holdings Ltd. creditors lawyer Martin Bienenstock said in a Dec. 5 court filing.
The shortfall in the MF Global brokerage’s U.S. segregated customer accounts may exceed $1.2 billion, more than double what was previously expected, Giddens has said.
Prudent and Sufficient
“The trustee believes that the amount held back from transfer is prudent and sufficient to address the known potential claims while maintaining further amounts to account for the potential of unknown claims against these same funds,” Giddens said today, referring to the $800 million he plans to hold on to.
CME Group Inc., which runs a futures exchange and has guaranteed some of the trustee’s transfers, said it supports more U.S. customer payouts.
“The proposed distribution will leave the trustee with an ample customer segregated cash reserve,” it said in a court filing today.
Including funds already distributed, Giddens controlled $4.9 billion in U.S. segregated commodity customer funds, CME said. It calculated that an additional $900 million in customer funds were traded on foreign exchanges, putting the total at about $5.8 billion. Previous estimates put the segregated accounts at about $5.4 billion.
Like Giddens, CME said the foreign futures accounts aren’t in the trustee’s control.
CME said the creditors committee in the holding company’s bankruptcy doesn’t have the legal right to object to the trustee’s distributions.
Transfers
Giddens, who is liquidating the brokerage, has transferred about 38,000 commodity accounts to other firms, and said he plans to sell 330 securities accounts. Three transfers of collateral made and pending will give commodity customers about $4 billion of their assets, according to court filings.
The parent company’s Oct. 31 bankruptcy filing, the eighth- largest in U.S. history, listed assets of $41 billion. Jon Corzine, the former co-chief executive officer of Goldman Sachs Group Inc., quit as MF Global’s CEO on Nov. 4.
The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York
