MF Global Holdings Ltd. (MFGLQ:US)’s disputes with its brokerage unit will “heat up” in coming months as arguments over $2.3 billion in claims proceed, lawyer Brett Miller told U.S. Bankruptcy Judge Martin Glenn in Manhattan court today.
Separately, the brokerage unit announced in a statement today that under an agreement with CME Group, the brokerage’s exchange, another $130 million will be recovered for customers.
Miller, updating Glenn on progress since a June 4 report from MF Global Holdings’ trustee Louis Freeh, said disputed amounts with the brokerage include $556 million in securities claims, $90 million in futures claims, and another $1.6 billion related to funding amounts. The trustee will soon file objections that will “set the stage” for arguments over the amounts, Miller said.
“We have had cooperation in responding to some of our requests, for others we have not,” Miller told Glenn.
Freeh has been unwinding the parent company under Chapter 11 of the U.S. bankruptcy code in an effort to repay creditors. A separate trustee, James Giddens, is overseeing the brokerage unit, MF Global Inc., which is liquidating under the Securities Investor Protection Act to repay customers. Both trustees issued reports June 4 on a their own probes into how the company failed and have been at odds over whether certain sums belong to creditors or customers.
Freeh’s June 4 report said the parent company may have more than $3 billion of claims against its affiliates and units.
Miller also told Glenn today that proceedings in the U.K. over a disputed $700 million in funds are proceeding. Glenn said he will “engage in court-to-court communication” with U.K. courts to facilitate an end to the dispute. A trial in 2013 over the dispute may be expected, Glenn said.
“As far as cooperation there have been some glitches,” James Kobak, a lawyer for Giddens said in court today. “There are differences between the estates.”
Kobak said Giddens has a “respectful relationship” with Freeh. Kobak said that the brokerage continues to have dialogue with the U.K. unit and wants to clear up that issue as soon as possible to return funds to customers.
According to Giddens’ statement today, the deal with CME Group covers $175 million of MF Global Inc.’s property which CME Group has had possession of. Of that, $16.5 isn’t related to customer claims and will be returned directly, Giddens said.
“This agreement supports my goal to expeditiously resolve outstanding conflicts with parties as we work to recover and distribute as much customer property as possible,” Giddens said in the statement.
In prior progress reports, Freeh and Giddens have disputed whether certain assets belong to customers or creditors. Customers were estimated to be out $1.6 billion as of Giddens’s last report. Distributions by Giddens are predicted to return about 80 percent of what U.S. customers are owed.
MF Global Holdings, run by former Goldman Sachs Group Inc. (GS:US) Co-Chairman Jon Corzine until his Nov. 4 resignation, filed the eighth-largest U.S. bankruptcy after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to margin calls. Its bankruptcy filing listed assets of $41 billion and debt of $39.7 billion.
Giddens said in his June 4 report that Corzine may face claims for breach of fiduciary duty and negligence for his role in the company’s downfall.
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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