In the meantime Giddens would find more assets and acknowledge that customer assets held in the United Kingdom (Part 30.7 secured funds) would not be so easy to secure. As we moved into 2012, Giddens officially placed the $700 million in customer funds held at the MF Global U.K. affiliate in the shortfall column, upping it to $1.6 billion, and would pursue litigation.
Giddens has been in discussions with JPMorgan, the largest creditor of MF Global, since the start and managed to get some funds returned but is still pursuing the matter. In August testimony before the Senate Ag committee, Giddens noted that to date JPMorgan has returned $89.2 million in customer property, $518.4 million in non-segregated unallocated MF Global Inc. assets subject to reservations, which include the $168.1 million in proceeds of excess collateral JPMorgan held when the brokerage went into liquidation.
In addition, Giddens is having discussions with JPMorgan regarding other transfers that could be returned to the broker. Trustee spokesman Kent Jarrell notes, “The Trustee is engaged in active discussions with JPMorgan with respect to those transfers described in the trustee’s investigation report, some of which the trustee believes potentially may be voidable or otherwise recoverable. The negotiations are active, encouraging and continuing.”
The money in question, including the $175 million transfer to London that JPMorgan asked to be given assurance was lawful, totals $475 million.
The trial in the U.K. litigation has been set for April 2013, but Giddens still is working on a settlement according to Jarrell. “The Trustee continues to engage in productive discussions with the Joint Special Administrators for MF Global UK Ltd. Litigation is progressing to resolve the dispute as to whether the customer property that is the subject of the Trustee’s approximately $700 million client claim was or should have been segregated under English law.”
In March 2012 an agreement was reached for the first interim distribution of approximately $650 million that brought 4d customers up to 80% and provided a 5% distribution to customers with overseas (30.7 secured) funds.
This brings us back to the August Senate hearings. Giddens reported that 4d customers had received $4.7 billion, 80%, of their assets and that he has more than $1 billion on hand, though that is not segregated assets. Freeh offered that commodity customers soon would be made whole, but may not be helping the matter by filing $2.3 billion in claims against the brokerage. Giddens only would commit to customers getting 90% of their assets.
“There is enough money that has been marshaled by Giddens to get the U.S. customers back to 100%, and it looks like there are going to be some favorable decisions in the (U.K.) case so we are talking about money for general creditors of [Brokerage],” Roe says. “The unallocated funds that Giddens has that he is reserving are against claims that Freeh has made against the estate. The money is there, he has to clear all the litigation before he can release it.”