CFTC avows MF Global customer priority

The Commodity Futures Trading Commission (CFTC) in a Jan. 18 reply brief to the MF Global bankruptcy court, clearly stated that MF Global commodity customers have priority over all other claimants.

In the brief the CFTC states that a Jan. 10 filing from Louis Freeh, the Chapter 11 Trustee for MF Global Holdings, Ltd., contained “errors and misstatements of law that, if accepted, may inhibit commodity customers from recovering their property.”

It goes on to say that contrary to the claims made by the MF Global Holdings trustee, “customer protections in the Bankruptcy Code, Commodity Exchange Act (“CEA”), and CFTC regulations apply to these proceedings and require that commodity customers be made whole in preference to substantially all other claims, including any claims by the MFG Holdings estate.”

While acknowledging that the liquidation is a proceeding under SIPA (the Securities Investors Protection Act) the brief goes on to state that a SIPA trustee must follow the applicable CEA rules regarding bankruptcy.

If that were not the case, states the filing, “the senseless result would be to render inapplicable the key regulations of the Commodity Futures Trading Commission in the largest commodity broker bankruptcy in U.S. history, and to strip of a remedy all MFGI commodity customers who entrusted their property to MFGI in reliance on applicable segregation requirements, based solely on the happenstance that the commodity broker also operated a much smaller securities business.”

While purportedly a response to claims made by the Holdings’ company trustee, a previous CFTC letter submitted on Dec. 12 regarding distribution of funds raised the ire of the some members of the Commodity Customer Coalition (CCC) in that the letter made no mention of customer priority.

In other MF Global new the CCC filed a brief in support of the Sapere Wealth Management, LLC, Granite Asset Management, and Sapere CTA Fund, L.P. motion directing MF Global Holdings and the bankruptcy Trustee to administer the Debtors’ estates pursuant to 11 U.S.C. §§ 761-767 and 17 C.F.R. § 190. According to the Sapere motion, "the effect of the order will provide priority status to commodities customers to the extent of their segregated accounts at MF Global, Inc."

It also seeks discovery on all records of the Holdings company. In its letter of support the CCC wrote, “months of discovery conducted by the Trustees have failed to shine light on the location of the missing customer property. The CCC feels that there would be less burden placed on the estate should customers be allowed to take discovery, as customers are more properly incentivized to unearth the truth quickly than the Trustees.”

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