MF Global Holdings Inc. won permission to have three more units join it in Chapter 11 bankruptcy, as a lawyer said more units are likely to file for protection from creditors next year.
MF Global Capital LLC, MF Global Market Services LLC and MF Global FX Clear LLC can consolidate their cases with that of the parent company, U.S. Bankruptcy Judge Martin Glenn in Manhattan said today. The units sought protection Dec. 19 after a decision by the Chapter 11 trustee, Louis Freeh.
“People had threatened to take action” and seize assets of the three units, so Freeh decided to put additional subsidiaries into bankruptcy, said Lorenzo Marinuzzi, a lawyer for Freeh.
More are likely to enter bankruptcy in January, Marinuzzi told the judge.
One of the units has $6.3 million in cash, related to the termination of its own trades, he said. They are unregulated entities not subject to the rules of the Securities Investor Protection Act, which authorized the takeover of the company’s main operating unit, now liquidating in a separate court proceeding. The money is believed to be related to house accounts, and not that of customers, Marinuzzi said.
The new units can use existing cash-management systems and continue intercompany transactions, the judge said after asking if customers of the failed brokerage will be protected if the units held any of their money from the segregated accounts.
Lawyers told Glenn that customers’ rights will be protected.
These debtors hold $22.4 million, said Brian Matsumoto, a lawyer for the Justice Department office that oversees bankruptcies.
MF Global Holdings, once run by Jon Corzine, a former New Jersey governor and Goldman Sachs Group Inc. co-chairman, filed the eighth-largest U.S. bankruptcy after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations.
About $1.2 billion may be missing from segregated customer accounts, according to James Giddens, the trustee appointed to liquidate the company’s brokerage.
Freeh is coordinating with Giddens and foreign trustees overseeing units in places including Hong Kong and Australia, and is studying the company’s organizational and transactional history, Marinuzzi said today.
“The process of putting all the pieces together is going to take some time,” Marinuzzi told Glenn.
MF Global Holdings filed for bankruptcy to apportion returns to creditors, including bondholders and lenders such as JPMorgan, while Giddens is overseeing distributions to customers at MF Global Inc. Giddens has set in motion distributions that will return around 72 percent to customers.
MF Global Holdings’ Oct. 31 bankruptcy filing listed assets of $41 billion and debt of $39.7 billion. Corzine quit as 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).