MF Global Holdings Ltd. won permission to implement rules that will restrict the sharing of confidential information while sharing some other information from Oct. 17 to Oct. 31 about its failed brokerage.
U.S. Bankruptcy Judge Martin Glenn approved rules proposed by Louis Freeh, the trustee acting for the parent’s estate and its creditors, according to court papers filed today in Manhattan. The first proposal, which limits how a committee of creditors will share information with customers, drew objections from customers who questioned JPMorgan Chase & Co.’s role in deciding whether they can access information about missing customer funds.
The official creditors committee had agreed to the protective order on confidential information, and said customers of the failed brokerage weren’t entitled to the same information as they were. While the parent company is unwinding to repay creditors such as JPMorgan, the brokerage, MF Global Inc., is unwinding to repay former customers under a separate trustee, James Giddens.
“Creditor demands for information should not be permitted to compromise the committee’s important role in the cases and be used as a subterfuge to obtain discovery,” Glenn said. He said that he also has denied discovery requests by private parties so that probes by the two trustees can “proceed unimpeded.”
The rules call for Freeh to help the creditors’ committee identify confidential information. The committee must respond to written requests to disclose information within 30 days, either to give access or explain why the information won’t be disclosed.
Six customers with at least $2.4 million in claims against the brokerage said the rules will restrict or delay their access to information about money believed to be missing from customer accounts. The holding company has the interests of creditors as its priority, while the brokerage has a duty to customers, the group said.
The customers also have sued New York-based JPMorgan, the company’s largest lender, over its role in MF Global’s collapse. Giddens currently estimates the gap between customer claims and funds available to pay them at $1.6 billion.
“It is patently unfair for JPMC, a member of the creditors’ committee and a defendant in several of the class actions filed on behalf of futures customers, to have a say in whether customers will have access to information,” according to the customers’ filing objecting to the confidentiality rules.
Glenn said the rules don’t resolve all issues related to access to information. His order isn’t “intended to limit or control discovery that may be authorized by the bankruptcy court or the district courts,” Glenn said.
Glenn also approved an agreement under which MF Global Holdings Ltd. will share some information about the company’s final days, which lawyers for Free said were in the “public interest.” Freeh agreed to waive his privilege for documents, communications or information on certain subjects from Oct. 17 to Oct. 31, when the company filed for Chapter 11.
Sapere Wealth Management LLC, a customer, had objected, saying the public interest was broader than the limited disclosure proposed under the agreement.
“Sapere cites no law in support of its position,” Glenn wrote in an opinion filed today.
Glenn also approved a settlement today among HSBC Holdings Plc, former MF Global customer Jason Fane, and Giddens which resolves a dispute over the ownership of five gold bars and 15 silver bars. HSBC, which has held the property, had competing claims from both Fane and Giddens for it. After negotiations, Giddens said the property didn’t belong to the general pool for customers, and could be released to Fane.
MF Global Holdings, run by former Goldman Sachs Group Inc. co-chairman Jon Corzine until his Nov. 4 resignation, filed the eighth-largest U.S. bankruptcy after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to margin calls. Its bankruptcy filing listed assets of $41 billion and debt of $39.7 billion.
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).