MF Global Sued Over Mercuria Energy Loan in Bankruptcy Court

Mercuria Energy America Inc. said a $20 million loan from an affiliate of MF Global Inc. shouldn’t have to be paid back after the brokerage misappropriated the $42 million trading account securing the loan.

Mercuria Energy America, in an adversary complaint filed yesterday in U.S. Bankruptcy Court in Manhattan, seeks a court order that it can offset its damages from the collateral account against the amount it owns on the loan.

Mercuria Energy America, a Houston-based unit of closely held Mercuria Energy Group Holding SA, said it would be a “travesty” if the company were to be required to go “out of pocket” to pay a unit of bankrupt MF Global Holdings Ltd. when the corporation failed to protect the collateral account that assured repayment of the loan.

MF Global Finance USA Inc.’s “demand requires a complete suspension of disbelief in the coordinated actions of the MF Global (MFGLQ) Enterprise, and the acceptance of a complete fiction that it is somehow independent of the gross misconduct here perpetrated,” the energy company said in its complaint.

The MF Global Holdings Ltd. parent and the commodity brokerage subsidiary, MF Global Inc., went into separate bankruptcies on Oct. 31. The holding-company parent is under control of Louis Freeh, as a Chapter 11 trustee, while the broker is under control of James Giddens, a separate trustee selected by the Securities Investor Protection Corp.

Melissa Hager, a lawyer representing Freeh in the MF Global Holdings case, and Ken Ziman, a lawyer for the parent company, didn’t return calls to their offices yesterday after regular business hours for comment on the lawsuit.

The adversary lawsuit is Mercury Energy America v. MF Global Finance USA, 12-1800, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, and the liquidation of the broker is In re MF Global Inc., 11-02790, both in the same court.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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