MF Global Holdings creditors question $1.6 billion estimate

April 12 (Bloomberg) -- Creditors of MF Global Holdings Ltd. are questioning a $1.6 billion estimate of how much more is required to repay customers of the failed brokerage, their lawyer said in Manhattan bankruptcy court today.

U.S. Bankruptcy Judge Martin Glenn said more information should be made available on June 4, when a six-month report on progress of probes into missing funds is due. Creditors had filed a status update on their own investigations last week, identifying assets they believed could be part of the bankruptcy estate, and saying a trustee for the company’s brokerage unit isn’t helping with a global analysis of books and records.

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.

“We think the SIPA trustee is saying he doesn’t have them, not necessarily that people don’t know where they are,” the creditors’ lawyer, Martin Bienenstock, told Glenn today, adding that the issue needs clarification if creditors are to know whether they may get some recovery from assets of the brokerage.

Estimate Unchanged

James Kobak, a lawyer for SIPA trustee James Giddens, told Glenn today that his estimate hasn’t changed, and is based on the total of claims filed, and the property that the trustee has on hand.

“The different between those numbers, at present, is still $1.6 billion,” Kobak said, noting that in some instances, such as $700 million held in the U.K., the trustee does know where the money is, but is unsure of whether he can get access. Giddens had also disputed creditors’ status report last week, and called its representations “incorrect.”

Glenn urged the two trustees to work together, and cooperate on the information to be reported June 4. Louis Freeh is the trustee for the holding company.

Separately, Giddens is still in discussions with JPMorgan Chase & Co. about the bank’s activities in connection with MF Global, and sees claims against it and other parties to recover funds for customers, Kobak told Glenn today.

Ruling Deferred

Giddens sees “more than colorable claims against some parties,” Kobak said, adding that aside from JPMorgan Chase, which the trustee has been holding talks with, the trustee “believes he may have claims against other parties.”

Glenn deferred ruling today on whether MF Global can distribute $685 million to customers of the failed brokerage, bringing them from 72 percent to about 80 percent of what they’re owed. He said he will rule later in court papers.

Under the proposed distribution, commodity customers who traded futures on foreign exchanges will get their first payments of about $50 million, while about $600 million will go to customers who traded on U.S. exchanges. Holders of physical assets such as precious metals are in line to get about $35 million.

Some customers had objected, questioning releases that they would be required to make to receive the money. A group calling itself the “Commodities Customers” also objected, saying the conditions could force them to give up claims against third parties.

‘Equitable Distribution’

By requiring a release, Giddens would “coerce futures account customers of MFGI to assign to him their claims against third parties as a condition to receive disbursements of their own money,” lawyers for the group wrote.

Glenn said that if customers hand over their rights to sue parties to Giddens, it will result in “the most equitable distribution” of proceeds from lawsuits to all customers. He questioned whether Giddens has the authority to demand those releases, however.

Separately today, Glenn rejected a request from customer Sapere CTA Fund to force Giddens to repay customers $120 million out of the proceeds of insurance policies for professional liability. Glenn had ruled earlier this week that Corzine and other executives can use insurance proceeds to pay for their defense.

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).

Bloomberg News

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