MF Global Inc. Trustee James Giddens has failed to claim $120 million in professional liability insurance due MF Global customers according to a motion filed on behalf of certain MF Global customers. The insurance was taken out by an in-house insurer, which the “proceeds are by law vested in – and required to be distributed to – MFGI’s commodities customers for restitution and damages resulting from wrongful acts of MFGI (the insured),” according to a motion filed on Monday.
The motion goes on to state: “The trustee is a fiduciary and has the duty to do this as promptly as possible. For unfathomable reasons, the trustee has not collected the policy proceeds. Instead, the trustee is passively acquiescing in efforts being made to divest MFGI’s commodities customers of the policies’ proceeds and to divert them to pay Corzine, et al.’s defense costs.”
Louis Freeh, the trustee for MFGH, has argued that the proceeds from these insurance policies — written by Bermuda-based MFG Assurance Co. Ltd. (MFGA), a wholly-owned subsidiary of MFGH — should be used to pay the defense of former MFGH officers and employees.
John Witmeyer, representing Sapere Wealth Management, says it is simple matter of insurance law. The relevant language in the MFG Assurance professional liability policy states: The insurer shall pay on behalf of the insured for all loss arising out a wrongful act which gives rise to a claim first made against an insured by a third party during the policy period (or discovery period, if applicable) and reported in writing to the insurer pursuant to the terms of this policy.
“Giddens hasn’t gotten the $120 million [because] he hasn’t asked for it,” Witmeyer says. “He should be able to [obtain these funds] without much difficulty.”
The motion is one of three related to the MF Global bankruptcy filed on Monday taking aim at the trustee for both MF Global Inc. (MFGI) and MF Global Holdings Ltd (MFGH). The motions were all filed by Ford Marrin Esposito Witmeyer & Gleser LLP, and all have to do with different aspects of the MF Global bankruptcy.
The firm has also filed suit against former MFGH Chairman and CEO Jon Corzine and officers of the company on behalf of Sapere CTA Fund, and in another motion had asked the court to treat MF Global as one entity subject to Commodity Exchange Act (CEA) rules of customer segregation. The bankruptcy attorney had denied this motion, which is under appeal.
The law firm representing Sapere has also filed an objection to the SIPA Liquidation Trustee’s Declaration, Assignment and Release. The objections states that the declaration “treats payment by the SIPA Trustee to commodities customers in respect to their segregated accounts as if SIPC insurance were paying an insured loss such that the insurer obtains subrogation to recover the insured loss from the culprit who inflicted that loss on the insured victim.”
The objection notes that is not occurring in this case as “MFGI has primary responsibility for the commodities customers’ loss of their segregated account funds.”
Witmeyer argues that in essence customers are being asked to “pay a ransom to get [their] own money.”
The third motion is a response to a memorandum in support of stipulation of MFGH and MFG Assurance regarding proceeds of the insurance policies. It states: “The law requires that the combined proceeds of the 2011-2012 MFGA Policies be distributed to, and are vested in, MFGI’s commodities customers whose segregated accounts are missing funds.”