Trustee James Giddens testimony to US Senate Ag Committee on MF Global

Customer Distributions

Commodities Accounts

Returning assets to the approximately 36,000 former MF Global Inc. retail commodities customers, who held millions of US futures positions, has been accomplished thus far through three Bankruptcy Court-approved bulk transfers. Once the Court-approved bulk transfers are completed, more than $4 billion will have been distributed back to these former commodities customers with US futures positions.

Approximately $2 billion was distributed to former MF Global Inc. retail commodities customers through the first two bulk transfers, which have been substantially completed. The first transfer was approved by the Court just two days after my appointment as Trustee and implementation began immediately. The first bulk transfer involved those accounts with open commodities positions – a total of more than 3 million positions with a notional value in excess of $100 billion. This transfer was implemented immediately to avoid automatic liquidation of the open positions per CFTC regulations, which would have disadvantaged customers and created instability in the futures market. The second bulk transfer totaled approximately $500 million in customer assets and involved accounts with cash-only positions.

A third bulk transfer was approved by the Bankruptcy Court last week, and it will allow the distribution of an additional $2.2 billion, which should result in former MF Global Inc. retail commodities customers with US futures positions receiving approximately 72% of their property. The implementation of this third bulk transfer is now underway, with completion of the process expected in two to four weeks.

The sequence and details of these transfers were driven by the priorities of returning customer assets in an expeditious and equitable manner while taking into account the complexities of the evolving situation and the unknowns regarding the locations of customer property and the amount available for distribution. With customer records and transaction bookkeeping in disarray, we worked to the full extent of the law to return assets and bring more assets under our control while also seeking to avoid market disruption.

I appreciate the exhaustive efforts of the CME and other derivative clearing organizations, which have made the bulk transfers possible. I also appreciate the CME’s offer of a $550 million guarantee, which will be available for the benefit of commodity customers should it ultimately be determined that any customer has received more than a pro rata share of the final distribution.

Securities Accounts

Last week, the Bankruptcy Court approved an expedited motion seeking authorization to sell and transfer substantially all retail securities accounts to Perrin, Holden & Davenport Capital Corp. This transfer of approximately 330 accounts will allow former MF Global Inc. retail securities customers to receive all or a majority of the net equity in their accounts. Securities customers should receive 60% or more of their account value, and 85% of the securities customers may receive the full 100% because of a SIPC guarantee.

I appreciate the ongoing support and partnership of SIPC. The staff of SIPC has been an invaluable resource for my office as we work to protect customers and return assets as quickly as possible. SIPC will play a vital role in the return of securities customer assets.

Claims Process

The Bankruptcy Court approved the customer claims process on an expedited basis on November 22, 2011. Consistent with SIPA principles and in the interest of an orderly and efficient claims process, separate, parallel customer claims processes have been established for MF Global Inc.'s commodity futures customers, securities customers, and general creditors, respectively.

Former MF Global Inc. commodity futures customers will file their claims against the commodity account estate. They will receive an equal, prorated distribution from two subsets in that estate: one for US positions traded through US clearing houses (so-called Rule 4(d) segregated funds), and another for foreign positions (so-called Rule 30.7 secured funds). The foreign secured funds are now largely under the control of foreign bankruptcy trustees or administrators, and I will use all means available to gain control of those assets held by foreign entities for the return to US customers. At this time, I do not have control of most of these assets and it is not known when, or if, the assets will become available to my office. If commodity customer claims are not satisfied from the segregated commodity account estate, the remaining claim will automatically go against the general creditors’ estate.

Security customers will file their claims against the separate fund of customer property segregated for security customers under SEC rules. Deficiencies will be covered to the limit of SIPC, which is $500,000 for the valid claims of each securities customer, including up to $250,000 for claims for cash deposited for the purpose of purchasing securities. Remaining deficiencies in security customer claims, if they exist, will automatically go against the general creditors’ estate.

General creditors cannot receive distributions from the customer estates and can only recover claims from the general creditors’ estate.

The clear regulatory intent of SIPA is the protection of customer property. Consistent with SIPA, I have the authority to seek recovery of assets removed from customer property funds to the extent a cause of action exists against those who wrongfully removed the funds. In addition, I may also seek Bankruptcy Court approval to allocate existing funds from the general creditors’ estate for distribution to customers to the extent of regulatory shortfalls and under certain conditions and circumstances.

Claims have already started to be filed and reviewed. My office is committed to processing them promptly and to supporting a customer-friendly claims process. More than 75,000 claims forms have been mailed to customers, and PDF claims forms have been available on the Trustee’s website since November 23, 2011. Detailed instructions and deadlines are also available on the website, and members of my office have been meeting with customer groups and counsel about the process.

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