U.S. Trustee Faults MF Global Customer Committee Proposal

A proposal by broker-dealer MF Global Inc. commodity customers for a committee to represent their interests was opposed by the arm of the Justice Department that oversees bankruptcy cases.

A group of commodity brokers proposed a committee to help recover money missing from their accounts, requesting that the bankrupt estate pay its legal fees. Such a committee shouldn’t be confined to commodity customers, and the “improper relief sought” for payment might have a bad effect on other liquidations, Tracy Hope Davis of the U.S. Trustee’s office said in a court filing today in U.S. Bankruptcy Court in Manhattan.

“The motion asks the court to subvert the statutorily mandated procedures by appointing a self-selected group of customers,” Davis said. A judge’s order granting the fee request might lead to “even properly elected” creditor committees claiming priority payment in liquidations, she said.

MF Global’s shortfall in U.S. segregated customer accounts may exceed $1.2 billion, more than double the previous estimate, said the liquidator of the failed brokerage today. 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 a person with knowledge of probes into the firm’s collapse. James Giddens, the liquidator, said today that forensic accountants and investigators are working “around the clock,” and the estimate may change.

Chapter 7 Overlap

Davis, who supervises administration of liquidation cases in the region, said parts of the law overlap for Chapter 7 proceedings and cases such as the MF Global brokerage, which is being liquidated by Giddens on behalf of the Securities Investor Protection Corp. Precedents set in this case might be followed in others, she said.

Earlier today, Dominion Resources Inc. said brokerage customers must have a voice in the liquidation and a committee to make sure they get access to their assets as soon as possible. Dominion, which describes itself on its website as one of the nation’s largest producers and transporters of energy, offered itself to the judge as a potential member, saying it has “substantial” claims against the brokerage.

Separately, MF Global Holdings Ltd., the bankrupt parent of the broker-dealer, joined with its creditors and asked a judge to appoint a trustee to coordinate globally with regulators and wind down its assets.

Bankrupt Parent

The holding company, which was run by former Goldman Sachs Group Inc. co-chief executive officer Jon Corzine, filed for bankruptcy after making bets on sovereign debt and getting margin calls. The New York-based company listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers. The broker-dealer is being liquidated separately.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-cv-7750, 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).

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