Judge Approves Deal Between MF Global Trustee and CME
08/10/2012| 02:09pm US/Eastern
By Joseph Checkler
A judge on Friday approved a deal between CME Group Inc. (>> CME Group Inc) and the trustee unwinding the brokerage of MF Global Holdings Ltd. (>> MF Global Holdings Ltd) that calls for former MF Global brokerage customers to get $130 million from the futures exchange operator.
Judge Martin Glenn, who held a hearing on the matter in U.S. Bankruptcy Court in Manhattan Wednesday, agreed with lawyers for the trustee, James W. Giddens, who said litigation over the money would have been drawn out and costly.
"The Agreement provides immediate benefit to the MFGI estate," Judge Glenn wrote, referring to MF Global Holdings Inc., the official name of the brokerage. The judge overruled an objection from an MF Global customer, saying his argument that the agreement bars customers from pursuing claims against CME in the future is incorrect.
"Nothing in the release sections in Article IV of the Agreement provides for any release of tort claims that customers may have against the CME Group," Judge Glenn wrote.
CME will transfer $160 million and the proceeds from exchange memberships to Mr. Giddens. The $130 million will then be turned over to brokerage customers, to be split between U.S.-based and overseas accounts. The additional $30 million would go to Mr. Giddens and would be allocated later.
"We are pleased with Judge Glenn's decision," said Kent Jarrell, a spokesman for Mr. Giddens. "Once we receive the funds from CME, we will have additional property on hand for the return to customers, and in order to distribute that property, we will ask Judge Glenn for authorization to make an additional distribution to former customers in keeping with necessary reserves for disputed claims."
The deal includes an agreement between Mr. Giddens, and Louis J. Freeh, the trustee in charge of MF Global's parent company. Essentially, Mr. Freeh wants the right down the road to fight the $130 million being allocated to customers. It is possible that Mr. Freeh will pursue claims against the brokerage as an individual customer, which typically gets paid ahead of other creditors in a brokerage liquidation.
Mr. Giddens is winding down MF Global's broker-dealer business under the authority of the Securities Investor Protection Act, which governs the liquidation of failed brokerage firms. The liquidation is separate from the bankruptcy case of MF Global Holdings, the parent company, which filed for Chapter 11 protection last fall. That estate is now being overseen by Mr. Freeh, a former director of the Federal Bureau of Investigation.
Mr. Giddens has recovered about $5.3 billion of the $5.5 billion to $6 billion in U.S. customers' segregated funds held at the brokerage and has returned more than $4 billion to customers via a series of bulk transfers arranged by CME in the weeks following MF Global's demise last year. Despite the return of that money, he still estimates a $1.6 billion shortfall in customer accounts, money that should have been matched dollar for dollar.
In separate reports earlier this year, Mr. Giddens criticized the sovereign-debt investments that drove MF Global out of business and said he might pursue claims against the man who directed those bets, former Chief Executive Jon S. Corzine. Mr. Freeh's report said the parent might have about $2.3 billion in claims against the brokerage business.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Joseph Checkler at email@example.com. Follow him on Twitter at @JoeCheckler.
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