Bloomberg News

MF Global Trustee Explains Delay in Releasing Collateral

November 17, 2011

(Updates with CFTC statement in sixth paragraph.)

Nov. 10 (Bloomberg) -- MF Global Inc.’s liquidator told commodities customers he can’t let then have any more of their collateral go until a probe into the “complex cash movements” at the defunct brokerage establishes the size of any shortfall.

James W. Giddens, the trustee handling the liquidation, has said he has “substantially” finished transferring 50,000 commodity accounts to other brokers, releasing $1.6 billion in collateral.

Under bankruptcy law, he must hold back enough collateral to cover a pro rata distribution of claims he estimates will be filed, and must determine the amount of all claims before more money can be released, he said to the commodities customers in a message on his website.

“The law requires that all commodities customers be treated fairly, and on a pro rata basis,” he said. “While we have received many requests for individual transfers, we must treat all customers equally and fairly, and do not have authority to make such transfers” under U.S. bankruptcy law.

The “around the clock” probe of MF Global’s cash movements is being conducted by the U.S. Justice Department, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the trustee’s staff in cooperation with the Securities Investor Protection Corp., Giddens said on his website.

‘Patently Illegal’

The probe may uncover “patently illegal” actions, Bart Chilton, a CFTC commissioner, said today.

“It’s a distinct possibility, some would say probability, that somebody has done something with the money, and that it’s not going to be ‘all of a sudden discovered’ with an innocent explanation,” Chilton said in an e-mail statement.

About $593 million in commodity customer funds are unaccounted for, according to a person with knowledge of regulatory probes into the failure of the New York-based firm.

“While the investigation is proceeding around the clock, we are unable to estimate when it will be complete,” Giddens said. The brokerage was run by former Goldman Sachs Group Inc. executive Jon Corzine until his resignation this month.

Giddens said he is trying to set up a speedy claims process that will allow him to distribute more funds “as soon as possible.” Commodity clients who don’t get all their collateral after filing a customer claim for their pro rata share will become unsecured creditors for the balance against the general assets of the defunct brokerage, he said.

Cash Transfer

MF Global commodity traders sought court permission this week to transfer cash out of the brokerage’s accounts, saying they believe the company has the funds needed to make whole each of the accountholders.

Separately, in a message to securities customers, Giddens said SIPC will cover any deficiency in their allowed claims of as much as $250,000 in cash or up to $500,000 in securities. While he’s trying to find a firm willing to take the approximately 400 securities accounts, “there is no assurance of a successful transfer,” he said.

The brokerage’s parent, MF Global Holdings Ltd., listed $39.7 billion in debt and $41 billion in assets in its bankruptcy filing on Oct. 31. Owners of the parent company’s senior unsecured debt may get back 10 cents to 30 cents on the dollar without an asset sale, credit-ratings company Fitch Ratings said today in a report.

The website for MF Global’s trustee logged 50,000 hits from Nov. 1 to Nov. 8, according to a spokesman for Giddens.

A call center set up for the brokerage’s customers got 4,000 calls through 2 p.m. New York time yesterday, the spokesman, Kent Jarrell, said.

The case is In re MF Global Inc., 11-ap-2790, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Silla Brush in Washington and Zeke Faux in New York. Editors: Andrew Dunn, Fred Strasser To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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