MF Global Holdings Ltd. may have more than $3 billion of claims against its affiliates and units, the company’s bankruptcy trustee said in a report detailing the progress of an investigation into its collapse.
The trustee, Louis Freeh, has been unwinding the parent company under Chapter 11 of the U.S. bankruptcy code in an effort to repay creditors. The operating unit, brokerage MF Global Inc., is liquidating under the Securities Investor Protection Act to repay customers. The unit’s trustee, James Giddens, issued his own report on a separate probe into how the company failed in a report yesterday.
Freeh was critical of Giddens in his report, saying the SIPA trustee isn’t helping the investigation with information including how much brokerage MFGI borrowed from a $300 million secured revolving line of credit and whether a repurchase agreement in August of 2011 that transferred 2.95 billion euros ($3.7 billion) of Italian bonds from MFGI to reduce its capital requirements was done properly.
The SIPA trustee has indicated that the repurchase agreement was booked “flat”, meaning that the financing was equal to the underlying value of the securities position, Freeh wrote. “The trustee cannot verify that this information is correct,” he said.
Freeh said Giddens has yet to turn over documents to verify the transaction’s details.
Freeh’s 119-page report yesterday focused on transactions that support MF Global Holdings’ claim that the company’s creditors are entitled to more than $3 billion from various units and affiliates worldwide, including $2.3 billion from the brokerage.
An investigation into the collapse of MF Global, which has included a review of internal documents and interviews with current and former employees, is also being conducted, Freeh said.
“As soon as practicable, the trustee will file a statement with the findings of his investigation,” according to the report.
In prior progress reports, Freeh and Giddens have disputed whether certain assets belong to customers or creditors. Customers were estimated to be out $1.6 billion as of Giddens’s last report. Distributions by Giddens are predicted to return about 80 percent of what U.S. customers are owed.
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