Brokerage Trustee says MF Global Creditors Isn’t Helping

MF Global Creditors Say Brokerage Trustee Isn’t Helping

By Tiffany Kary – Apr 6, 2012 6:27 PM GMT+0100

Creditors of MF Global Holdings Ltd. (MFGLQ) identified $717 million in customer funds moved to eight institutions in October as among potential assets and said a trustee for the company’s brokerage unit isn’t helping with a global analysis of books and records.

Creditors identified 13 potential items of value in a status update filed in Manhattan bankruptcy court yesterday. One is $290 million of non-customer money that was held by the brokerage as of Jan. 1. Another potential asset is $875 million that MF Global Holdings gave to the brokerage in the days before its Oct. 31 collapse, creditors said.

While MF Global Holdings is unwinding in bankruptcy to repay creditors, its former operating unit, brokerage MF Global Inc., is liquidating under the Securities Investor Protection Act to repay customers who are estimated to be out $1.6 billion. The holding company and brokerage each have their own trustee, and the two have disputed whether certain assets belong to customers or creditors.

“Lack of SIPA Trustee participation is a major hurdle,” the creditors said in the report. MF Global Holdings has concluded it “is unlikely that support from global affiliates is forthcoming” in closing the books and records to give a picture of where the company’s finances stood at Oct. 31, the creditors said. The SIPA trustee is James Giddens, while the trustee for the holding company is Louis Freeh.
Report ‘Incorrect’

Giddens disputes the report and calls its representations “incorrect,” said Kent Jarrell, his spokesman.

“It is apparent that MF Global Holdings Ltd. and its creditors want to pursue their own claims at the expense of the former customers unfairly penalized by the company’s failure to properly segregate their property from business operations,” Jarrell said in a statement. He added that Giddens will continue to try to maximize returns to customers.

So far, about 72 percent of their funds have been distributed, and a distribution was initiated in March to bring that figure to about 80 percent, according to Giddens.

MF Global Holdings, run by former Goldman Sachs Group Inc. (GS) 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.
‘Not Under Control’

The creditors also said in their report that $850 million in customer funds at U.K. and Canadian units are considered “funds not under control” of the brokerage’s trustee, and that $220 million was also transferred from securities customer accounts to commodity accounts on Oct. 31. To resolve whom these amounts belong to, creditors say they need more information from Giddens, including an accounting of all movements of customer funds in October.

The creditors also seek transaction records from Giddens concerning $244 million in margin used to fund $4 billion in a “back-to-back RTM of Italian Sovereign debt.” RTMs, or repurchase to maturity agreements, have been cited as one of the complex transactions that made it difficult to understand how money moved in MF Global’s final days.
Affiliate Securities

Other assets identified by creditors include $350 million in positions for which MF Global Special Investors LLC posted margin, and $82 million in trades that haven’t been closed. Giddens also holds $133 million in securities belonging to MF Global affiliates, the report said.

MF Global Holdings and MF Global Capital also have accounts at MF Global Inc., which will be the subject of future meetings between the two trustees, creditors said.

The creditors said they “agreed to refrain” at this time from reporting on their efforts to identify information about funds in foreign affiliates, citing a request of the parent company’s trustee, Freeh.

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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