Trustees bicker as MF Global customers wait

Louis FreehThis claim has taken on more complexity as Louis Freeh, Trustee for MF Global Holdings, also claims creditor status for ownership of those T-bills sent to the UK as collateral. And more recently both LCH.Clearnet Group, Ltd. and ICE Clear Europe, Ltd. also have filed suit for these same assets.

The UK Administrators outright reject the Freeh claim for MF Global Holdings as frivolous on the grounds that: the brokerage unit (MFGI) had submitted a claim against MFG UK on this, and MFG UK’s records showed that only MFGI , rather than MF Global Holdings, is the appropriate party to pursue the claim on collateral. 

The third claim by Giddens against the UK estate was for losses of approximately $350 million incurred when the RTM positions were closed out. Or in other words, the difference in the value of the positions on Oct. 31, 2011, vs. when they were closed out by the Special Administrators.

This claim is noteworthy in that it is as if U.S. commodity customers filed claims for losses realized due to forced liquidation resulting from court orders in the first confusing days of the SIPC proceeding. But this is more so because it was the U.S. brokerage that went under liquidation protection of a SIPC trustee, which is “analogous to a liquidator.” And under the terms of the Global Master Repurchase Agreement (GMRP) between the U.S. brokerage (MFGI) and the UK brokerage, MFGI was therefore in default of its own agreement. UK Judge David Richards ruled that KPMG was within all rights to value the securities. Pink states that the repo dispute with Giddens was about “where that loss is borne. Our view is very clearly it’s (MFGI’s) problem.”

A ruling against MFGI on this claim was made on Nov. 1, 2012, and with the ruling MFGI was denied permission to make an appeal. Further, as the losing party, it must pay the Special Administrators’ costs (which is not unusual in Europe).

The spokesperson for the MFGI SIPC Trustee stated on Nov. 30 that Giddens is considering filing an appeal of this ruling.  He added, “We are disappointed by the decision handed down. The decision, based on a technical interpretation of standard contractual terms governing repo-to-maturity trades, is likely to reduce the value of the Trustee’s claims to recover from MF Global UK various sums payable in connection with those repo-to-maturity trades. The Trustee is considering whether or not to apply to the Court of Appeal for permission to appeal the decision.”

The UK estate has not made a distribution yet based on the RTM decision and will retain reserves until outstanding claims are resolved. The U.S. brokerage claims are $147 million for the 30.7 funds plus approximately $600 million on the T-bills still held at LCH.Clearnet.

Reflecting the view of most all MF Global UK clients, Erico Matias Tavares, director of Sinclair Advisors concludes, “We entrusted a centuries old financial and regulatory system in the UK with our assets. Large broker disasters in recent years have a London connection. MFG UK is yet another case study of regulatory failings to protect client funds, the backbone of any financial system.”

Outlook for resolution?

Through his spokesperson, Giddens reports, “The Trustee continues to discuss a number of issues with the UK Administrators in an attempt to resolve as many matters as possible, which will help both the Trustee and the UK Administrators to maximize returns to customers and creditors.”

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