(Updates with name of customer in second paragraph.)
Feb. 7 (Bloomberg) -- MF Global Inc.’s brokerage customers objected to the use of the failed brokerage’s insurance coverage for former employees, saying the $170 million insurance policy should instead be used to repay customers missing $1.2 billion from their accounts.
Henning-Carey Proprietary Trading LLC, which has a lawsuit against former MF Global chief Jon Corzine in Illinois court, said in court papers filed in the bankruptcy of MF Global’s parent company today that Chapter 11 Trustee Louis Freeh seeks to allow individuals covered by the insurance to use it for defense costs. Freeh’s request was made to draw on policies held by MFG Assurance, a wholly-owned subsidiary of MF Global Holdings Ltd.
“There appears to be $170,000,000 in insurance coverage potentially available under the MFG Assurance policies to satisfy the claims which the Objectors and tens of thousands of other MFGI commodities customers have against MFGI, MF Holdings and their employees,” lawyers for Henning-Carey wrote.
“Under no circumstances should MFG Assurance be granted unchecked discretion to pay the significant benefits available under its Policies to whomever it wishes whenever it wishes,” the lawyers wrote.
Joining in the objection were the former Chairman of the Chicago Board of Trade and two former Vice-Chairmen of CME Group Inc. CME Group served as the main exchange for MF Global, as well as its regulator.
The parent, MF Global Holdings Ltd., once run by former New Jersey governor Jon Corzine, filed the eighth-largest U.S. bankruptcy on Oct. 31 after getting margin calls and bank demands for money. The brokerage and the parent are in different bankruptcy proceedings handled by two trustees.
About 72 percent of customers’ assets are so far being returned. Brokerage customers are demanding more, while creditors of the parent company, who have yet to receive any money, are trying to improve their potential payout.
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).
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