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

MF Global’s original sin

A distinction without a difference

By Daniel P. Collins

Bankruptcy law is complex and confusing. Throughout the MF Global saga competing interests have claimed that the process has been distorted to prevent futures customers from receiving the priority to recoup their funds, which was their right based on customer segregation rules. 

As many have stated, they are customers, not creditors, and their funds were required to be segregated from the assets of the firm. 

The Commodity Customer Coalition (CCC) and attorneys for Sapere have argued that the MF Global Holdings Chapter 11 bankruptcy should be converted to a Chapter 7 bankruptcy to ensure this priority. 

This has frustrated CFTC Commissioner Jill Sommers who maintains futures customer priority remains intact regardless of the bankruptcy structure. While the liquidation is administered through SIPC, CFTC Part 190 customer priority rules stand, she has argued. 

One person who doesn’t seem to agree with this is MF Global Holdings Trustee Louis Freeh, who has challenged this priority at several turns. If the bankruptcy judge rules in his favor, whether or not a Chapter 7 vs. Chapter 11 procedure protects customer priority is a distinction without a difference, and is why allowing a firm that operated as one entity to be split into separate bankruptcy proceedings was the original sin in this mess.

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