Bloomberg News

MF Global Parent Creditors Clash With Brokerage Customers

December 07, 2011

Dec. 6 (Bloomberg) -- Creditors of bankrupt MF Global Holdings Ltd. are clashing with customers of the MF Global Inc. brokerage over assets as each side seeks more money for itself.

Creditors of the parent company formerly run by Jon Corzine yesterday faulted the brokerage trustee James Giddens for planning to distribute $2.1 billion to customers without verifying that the customers are entitled to receive the funds. Separately, brokerage customer Sapere Wealth Management LLC asked a federal judge yesterday to rearrange MF Global Holdings’ bankruptcy so commodity customers of its brokerage get priority for their claims.

The quest for more assets intensified after Giddens said money missing from the brokerage’s U.S. commodity customer accounts, which should have been segregated, may exceed $1.2 billion, more than double the previous estimate. The parent company’s creditors also are facing uncertain paybacks as cash dwindles to a projected $3 million by Jan. 6, according to filings.

Still, getting priority claims from an affiliate might be difficult, said Stephen Lubben, a bankruptcy law professor at Seton Hall University in Newark, New Jersey.

If brokerage customers have a shortfall, “their claim for the remainder is on a par with other unsecured creditors,” he said in an e-mail. “I don’t know of any argument for priority of such a claim.”

Right to Cash

In its filing, Sapere said the judge might help brokerage customers by reviewing the parent’s right to use cash. The parent currently has permission to use the cash until Dec. 9, when the judge is due to revisit the matter.

The holding company needs the money to pay employees and cover real estate and technology costs, according to court papers. Projected cash outflows for the company and affiliates are $11.8 million through Jan. 6 and would leave a balance available for use of $3 million on that day, according to filings.

Other commodity customers have objected to the parent’s plan to give special protection to lenders including JPMorgan Chase & Co., saying that would hurt them.

The holding company’s creditor committee meanwhile has seen large payouts to commodity customers. 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, creditors’ lawyer Martin Bienenstock said in a court filing yesterday.

Commodity Accounts

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 (Manhattan).

--With assistance from Thom Weidlich in New York. Editors: David E. Rovella, John Pickering

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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