MF Global Holdings objects to cooperation on class claims

MF Global Holdings Ltd.’s trustee, Louis Freeh, said the rights to any winnings from lawsuits against the failed brokerage’s officers and directors including Jon Corzine shouldn’t be given to customers, and should go to the general estate instead.

Representatives for customers have already started class-action, or group, lawsuits against former directors and officers of the company, and a trustee for customers has said he plans to cooperate, sharing documents in exchange for any recoveries.

Because the agreement calls for general estate creditors to be paid only if the customers are paid in full first, the customers “are clearly not properly incentivized to litigate fully,” Freeh said in an objection filed in Manhattan bankruptcy court today.

He said that while some lawsuit proceeds may belong to customers, it is up to the general estate to manage them. Freeh has been unwinding the parent company under Chapter 11 of the U.S. Bankruptcy Code to repay creditors.

A separate trustee, James Giddens, is overseeing the brokerage unit, MF Global Inc., which is liquidating under the Securities Investor Protection Act to repay customers. Both trustees have made their own probes into how the company failed and have been at odds over whether certain sums belong to creditors or customers.

‘Not Incentivized’

“To assign general estate causes of action to a party other than the Chapter 11 Trustee -- and worse yet to customer representatives that are not incentivized to look out for the interests of general estate creditors -- would appear not only to be a poor exercise of business judgment but also could jeopardize the Chapter 11 Trustee’s own causes of action,” lawyers for Freeh wrote.

MF Global Holdings, run by former Goldman Sachs Group Inc. Co-Chairman Jon Corzine until his Nov. 4 resignation, filed the eighth-largest U.S. bankruptcy in October after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to margin calls.

Separately, Corzine and other officers, a group of lenders and a group of creditors also objected in court papers filed today. Corzine and 23 other individuals at the company said that as potential defendants, they object to Giddens’ plan to give the plaintiffs whatever materials he wants.

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