Bankrupt MF Global Holdings Ltd.’s broker-dealer will be liquidated under the supervision of the same trustee who is unwinding Lehman Brothers Holdings Inc.’s brokerage, a federal judge ruled.
James Giddens, the trustee liquidating Lehman’s brokerage after its parent filed the biggest bankruptcy in U.S. history, was appointed today after the Securities Investor Protection Corp. sued broker-dealer MF Global Inc., run by former Goldman Sachs Group Inc. co-chairman and former New Jersey Governor Jon Corzine. SIPC said the broker-dealer might not be able to meet its obligations to customers who have accounts with the company.
“The defendant has failed or is in danger of failing to meet its obligations to its customers,” SIPC, which oversees liquidations and compensates customers for part of their losses, said in court papers. “Specifically, the defendant is unable to meet its obligations as they mature.”
U.S. District Judge Paul Engelmayer appointed Giddens at SIPC’s request. When broker-dealers are liquidated, customer accounts often go to other firms. Barclays Plc took over accounts from Lehman’s brokerage.
MF Global, the New York-based holding company for the broker-dealer, listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. The company described itself as “one of the world’s leading brokers in markets for commodities and listed derivatives,” providing access to more than 70 exchanges.
MF Global was one of about 20 dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York, before the Fed said today that it ended that relationship.
SIPC, created by Congress in 1970 after brokerage failures in the late 1960s, gets money from brokerage firms to pay investors as much as $500,000 each for their losses. Chartered to guard investors against broker theft or brokerage failure, SIPC is overseen by the U.S. Securities and Exchange Commission.
The lawsuit is Securities Investor Protection Corp. v. MF Global Inc., 11-cv-7750, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).