From the May 01, 2012 issue of Futures Magazine • Subscribe!

MF Global trustees square off

Insurance Judgement

As the MF Global debacle has dragged on, one thing that has become apparent is that the two trustees are on a collision course as they battle for what’s left of the bankrupt firm. 

Customer advocates have grown frustrated with both the perceived timidity of MF Global Inc. (MFGI) trustee James Giddens in advocating on their behalf and the boldness of the parent company MF Global Holdings (MFGH) trustee Louis Freeh for continuing to argue that customers have no standing in the affairs of MFGH while at the same time inserting himself into the MFGI liquidation. Meanwhile, the two trustees have begun to square off. 

In an April filing, MFGH and the Chapter 11 creditors’ committee claimed that the MFGI trustee had withheld information from them. While this may seem like the pot calling the kettle black in that Freeh had spent months refusing to release information based on client-attorney privilege, it engendered a rather curt response from Giddens, who noted in a reply that the MFGH filing included “incorrect statements.” 

Days later, the MFGI trustee provided an update on the investigation, stating that it may pursue civil charges against MFGH. “Based on [the] investigation of conduct, allocation of responsibilities and reporting with respect to the segregated customer accounts, the trustee believes that there are claims he may assert against certain responsible individuals at MFGI and Holdings (and Holdings itself) for, among other things, breach of fiduciary duties owed to both MFGI and its customers, and violations of the segregation requirements of the Commodity Exchange Act.”

It went on to state that the trustee was committed to working cooperatively with customers to return customer property. 

In elaborating on the statement, MFGI trustee spokesman Kent Jarrell said they are exploring working together with various plaintiffs’ attorneys who have filed lawsuits against officers and directors of MFGH. “Because we are statutorily required to take all means necessary to return funds to former customers, we want to see if there is a more efficient way to do it instead of having separate litigations. It is all about efficiencies. How do you get the most money back to customers?” Jarrell says. “We know where the money is; it is just a matter of  can we get it back under our control for the return to customers,” he adds. 

The trustee may have been emboldened by a memo sent from the Commodity Customer Coalition to the Department of Justice, U.S. Attorneys for the New York and Chicago districts and representatives of all the pertinent congressional committees, stating it believes there is sufficient evidence of an intent to commit fraud by various MF Global employees to support criminal charges. 

It included documents that showed MF Global had changed procedures in its final days by sending out checks through the mail to customers instead of wiring money to them, while simultaneously wiring funds to creditors. The memo stated, “MF Global artificially reduced the amount of assets they were required to keep in segregation on paper while not reducing the amount of assets in the customer segregated bank account.”

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