MF Global Agreement With CME Group Wins Court Approval

The trustee liquidating MF Global Inc. (MFGLQ) won court approval to receive $130 million from CME Group Inc. to pay back the bankrupt brokerage’s customers and other creditors.

U.S. Bankruptcy Judge Martin Glenn said in court papers filed in Manhattan bankruptcy court today that the agreement can go forward, overruling an objection from one customer. Glenn had heard arguments in court on Aug. 8., including those from the Commodities Future Trading Commission and Securities Investor Protection Corp. in support of the pact.

“The agreement is the product of arm’s length negotiations,” Glenn wrote, adding that it is in the “best interests” of the brokerage’s estate.

Commodity customers who traded on U.S. exchanges will get $65 million, with the same amount going to customers who traded on foreign exchanges, while non-customer creditors will get $16.5 million, trustee James Giddens has said. In total, CME Group will return $175 million to the failed brokerage, settling all disputes about how much of MF Global’s property and customer property rested with the exchange.

Once Giddens receives the funds, he’ll ask the court for authorization to make another distribution to customers, keeping aside a reserve for any disputed claims, said Kent Jarrell, a spokesman for Giddens.

CME Funds

“We’re pleased with Judge Glenn’s decision,” Jarrell said in a statement. “Once we receive the funds from CME, we will have additional property on hand for the return to customers.”

One customer, Paul Hamman, had objected, citing the confidential nature of part of MF Global’s agreement with CME Group and alleging the exchange had facilitated fraud at MF Global. Glenn overruled his objections, saying his objections were unsupported by facts.

Under the agreement, more than $30 million of CME’s claims against MF Global will also have a lower priority when it comes to getting paid than brokerage customers.

Giddens has set in motion distributions that will repay commodity customers about 80 percent of what they’re owed for funds missing from their segregated accounts. He has estimated that there’s a gap of $1.6 billion between the money available to pay them and what they’re owed.

Giddens said Aug. 1 that he’s still evaluating creditor and customer claims, and may litigate those where an agreement can’t be reached on what the brokerage owes. He said he still sees lawsuits against former MF Global Chief Executive Officer Jon S. Corzine, former chief financial officer Henri Steenkamp and former assistant treasurer Edith O’Brien, among others, as a way to recover more money for creditors.

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: Tiffany Kary in New York at tkary@bloomberg.net

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

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