Bloomberg News

MF Global Brokerage Trustee Outlines Customer Claims Rules

December 14, 2011

Dec. 12 (Bloomberg) -- MF Global Inc. will distribute the remaining 28 percent customers claim they’re owed by taking “traceable” assets and putting them in pools for different types of accounts, said James Giddens, a trustee for the liquidating brokerage.

Giddens described the rules for customer claims in a 30- page document filed in Manhattan court today. Last week, a bankruptcy court judge approved the last of the so-called bulk distribution to customers, a $2.2 billion distribution which, once transferred, will allow customers to recover 72 percent of what they lost when the brokerage failed.

“‘Public customers’ of MFGI -- essentially all customers with commodity accounts other than proprietary accounts of MFGI, MFGI affiliates and insiders,” will get distributions first, Giddens said in court papers. Securities customers will have pools that are separate from commodities customers, he said.

If there isn’t enough in that pool, the U.S. Securities Investor Protection Corp. provides for as much as $500,000 per customer, of which as much as $250,000 may be for customer cash deposited for securities transactions, he noted.

After the third transfer was approved Friday, Giddens had set aside more than $1 billion to deal with other claims, James Kobak, a lawyer for Giddens, said at the hearing.

MF Global Holdings, once run by former New Jersey Governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed the eighth-largest U.S. bankruptcy after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations.

Liquidation Regulations

Separately, the SIPC and the Commodities Futures Trading Commission filed court papers about regulations governing the liquidation.

Commodities customers “are granted the highest priority against the bankrupt broker’s estate,” and if customer property isn’t sufficient to pay all claims of public customers, “other estate property will be used to satisfy those claims,” lawyers for the CFTC wrote.

SIPC, which protects securities customers and not commodities customers, is authorized to borrow as much as $2.5 billion through the Securities and Exchange Commission should its funds be inadequate to carry out demands, according to court papers.

MF Global Holdings filed for bankruptcy to apportion returns to creditors, including bondholders and lenders such as JPMorgan Chase & Co., while Giddens is overseeing distributions to customers at MF Global Inc. under the Securities Investor Protection Act.

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).

--Editors: Glenn Holdcraft, Andrew Dunn

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

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


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