MF Global Trustee to Return Up to $2.1 Billion to Customers

The trustee liquidating MF Global Inc. will return as much as $2.1 billion to commodity customers, an amount that’s 66 percent of U.S. customers’ segregated assets.

The latest, and third, transfer to customers of the defunct brokerage will bring total distributions to $4.1 billion, or about three-quarters of customer assets, trustee James Giddens said in a statement today. The transfer, which will rely on CME Group Inc. and clearing organizations for data and assistance, may be completed in two to four weeks, he said.

The trustee’s goal has always been “to make as full and as prompt a distribution of customer property to MFGI’s former customers as the circumstances and the law will allow,” Giddens said in a related court filing today asking a judge to approve the transfer.

By law, Giddens is required to distribute assets equitably, and he had said he was holding funds in reserve to cover any missing customer money. Two previous distributions restored $2 billion of assets to commodity customers.

MF Global customers have been demanding their assets in court filings and letters faxed to the judge handling the case. Giddens previously planned to distribute 60 percent of what should have been in commodity customers’ accounts in the latest transfer, saying it would take $1.3 billion to $1.6 billion, or almost all of the assets he had within his control.

Enough Liquidity

A group of MF Global customers who argued for a larger distribution said it applauded Giddens’s new plan, which showed there was enough liquidity in the brokerage “to get clients 75 percent of their funds immediately.” The Commodity Customer Coalition said it represents more than 7,000 former MF Global customers whose funds were frozen in the liquidation.

Giddens said today that the larger distribution will leave him with enough assets in reserve to deal with any missing customer money. CME, which runs a futures exchange, has offered to guarantee as much as $550 million of the transfer, he said.

The shortfall in the MF Global brokerage’s U.S. segregated customer accounts may exceed $1.2 billion, more than double what was previously expected, Giddens has said. That would mean customer accounts are missing about 22 percent of their total of $5.4 billion. A shortfall of 11 percent had been previously estimated by the Commodity Futures Trading Commission.

‘Conservative Approach’

“The trustee continues to take a conservative approach to the shortfall,” spokesman Kent Jarrell said in an e-mail today, responding to questions about reports that some of the missing money may have been found.

“The amount is still not known with certainty, but there is no disagreement that it is significant,” he said. “These have always been presented as preliminary numbers that may well change, and we of course hope for the benefit of customers that the number comes down.”

Customers waiting for physical assets including warehouse receipts and precious-metal certificates are intended to benefit from the latest transfer, although they may have to wait longer than customers waiting for cash, Giddens said in the court filing.

Giddens plans to keep from 15 percent to 20 percent of U.S. segregated customer assets in reserve for contingencies, he said.

Customer Objections

Separately, customers of the brokerage are objecting to plans by bankrupt parent company MF Global Holdings Ltd. to use cash and continue investments with affiliates including the brokerage.

Sapere Wealth Management LLC said in a filing today that commodity customers’ money doesn’t belong to the parent “to be invested riskily for their benefit.” The money management firm said its futures account at MF Global included $240 million in cash in segregated accounts, according to the filing today.

Dominion Resources Inc., whose Virginia Electric and Power Co. and other affiliates are customers of the MF Global brokerage, said the parent company shouldn’t be allowed to use cash securing its loans, because brokerage customers may need to obtain assets from the parent to make up for an apparent shortfall in their collateral.

The parent company’s Oct. 31 bankruptcy filing, the eighth largest in U.S. history, listed assets of $41 billion. The firm said it has about $26 million in cash. Corzine, the former co- chief executive officer of Goldman Sachs Group Inc. (GS), quit as MF Global’s CEO on Nov. 4.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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