By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
The trustee unwinding MF Global Holdings Inc.'s (>> MF Global Holdings Ltd) brokerage said Thursday that litigation has begun in the U.K. over $700 million in disputed customer assets, setting up a fight with the company's U.K. administrator, KPMG LLP.
KPMG made a filing in the U.K. seeking direction from a court, said trustee James W. Giddens, taking the first legal step in a battle over the money. Giddens last month said he requested KPMG to make that filing, which KPMG said it would do.
A spokesman for KPMG didn't immediately comment Thursday. Kent Jarrell, a spokesman for Giddens, said details of the filing will remain confidential under U.K. law until the first hearing in the case.
Giddens and KPMG both see the $700 million as their responsibility, and last month both sides acknowledged that the issue would probably be best decided in court. The $700 million is part of an estimated $1.6 billion in money held in "segregated" MF Global customer accounts that has been missing since its parent company filed for bankruptcy Oct. 31.
"As the advocate for all former customers of MF Global Inc., we are prepared to fight in any jurisdiction for the return of customer funds to their rightful owners," Giddens said in a statement, referring to the brokerage by its official name.
The U.K. dispute centers on whether a $700 million claim by MF Global Inc. against MF Global UK should be treated as a claim against the U.K.'s segregated pool of client funds or whether it should be treated as an unsecured claim against the estate.
If the claim is against a segregated pool, Giddens will be able to return the money to U.S. clients. If the claim falls into the nonsegregated pool, the trustee will be treated as a general creditor and unlikely to recover any money.
In a decision earlier this year that could be seen as a precedent, the U.K. Supreme Court said billions of dollars in client cash belonged to Lehman Brothers Holdings Inc.'s (LEHMQ) brokerage regardless of whether it was properly segregated. The decision was a win for customers of Lehman's U.S. unit and Giddens, who also is unwinding Lehman's brokerage, and a loss for KPMG, which happens to also be the administrator for Lehman in the U.K.
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 Oct. 31. That estate is now being overseen by Louis J. Freeh, a former director of the Federal Bureau of Investigation.
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 Group Inc. (CME) in the weeks following MF Global's demise last year.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; email@example.com
--Jessica Hodgson, Patrick Fitzgerald and Marietta Cauchi contributed to this article.