MF Global $1 billion vanished into brokerage, court is told

May 18 (Bloomberg) -- MF Global Holdings Ltd. still can’t trace where some of the money went when its brokerage collapsed, including $1 billion that “vanished” into the brokerage unit MF Global Inc., an attorney told a bankruptcy court.

Brett Miller, a lawyer for MF Global Holdings’ Chapter 11 estate, told U.S. Bankruptcy Judge Martin Glenn in Manhattan today that court papers detailing the assets and debts of five of its six bankrupt units are likely to be filed today. Details on the sixth, MF Global USA, which filed for bankruptcy in March, will take about another week, he added.

A report is due June 4 from Chapter 11 trustee Louis Freeh on the results of a probe into how the brokerage failed last October. Miller said key information is still unknown.

“Whereas we can trace certain moneys, the shocking amount of money funneled from Holdings to Inc.” in the months before its bankruptcy left “no trail,” Miller said.

As MF Global Holdings unwinds in bankruptcy to repay creditors, its former operating unit, 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 has its own trustee, and the two have disagreed on whether certain assets belong to customers or creditors. The SIPA trustee is James Giddens.

Two Trustees

It will become clearer in coming weeks how the company can meet its obligations to lawyers and other professionals working on its case, Miller told the judge.

“Some people have started to joke that they’re working for both F-r-e-e-h and f-r-e-e,” the lawyer said.

The law firm Dewey & LeBoeuf LLP on May 11 filed a request for $4 million for its work over six months representing the creditors’ committee. The collapsed law firm said it knows the estate doesn’t have enough money to pay all professionals.

The company’s total unpaid professional fees so far are $24.8 million, including $7 million for professionals working with the creditors’ committee, and $11.1 million for Freeh and his staff. Another $6.7 million is related to professional fees incurred before Freeh was appointed, according to an operating report for April.

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