The judge overseeing MF Global Inc.’s bankruptcy asked for changes in the agreements a trustee for customers has made about class-action lawsuits against Jon Corzine and other former company executives.
U.S. Bankruptcy Judge Martin Glenn said the agreement should give his court more authority to approve the way customers and creditors share any winnings or settlement proceeds. The trustee, James Giddens, had proposed sharing information with customers and overseeing the distribution of any winnings. Louis Freeh, the trustee in control of the failed brokerage’s parent MF Global Holdings Ltd., had objected, saying he should oversee the lawsuits.
The agreement “reflects an appropriate exercise of business judgment,” avoids duplicative lawsuits by trustees and customers and saves money for the estate, Glenn said today.
The wording of the agreement should call for any settlement to get approval from both the bankruptcy court and the district court where customers sued MF Global’s directors, Glenn said. He said the initial version of the agreement could have circumvented an issue on which he has yet to rule, whether customers have a priority over general creditors to be repaid. Corzine, MF Global’s former chairman and chief executive officer, is a former governor of New Jersey.
Giddens is overseeing the wind-down of the brokerage unit under the Securities Investor Protection Act and seeking to repay customers. Under Freeh, the holding company is winding down to repay creditors including JPMorgan Chase & Co.
“We think this will bring tremendous efficiencies and will jump start the discovery and the prosecution of claims against Corzine and others,” said Kent Jarrell, a spokesman for Giddens, noting that the trustee was pleased with the ruling.
Each trustee has said the other trustee is conflicted. Both also have made probes into how MF Global failed and have been at odds over whether certain sums belong to creditors or customers.
Aside from Corzine, Giddens has said he sees possible claims for breach of fiduciary duty and negligence against former Chief Financial Officer Henri Steenkamp and former assistant treasurer Edith O’Brien, among others. Giddens has said any money recovered should go to customers, who face a gap estimated at $1.6 billion.
Representatives for customers have already started class-action, or group, lawsuits making similar claims against former MF Global directors and officers. The suits were consolidated in Manhattan federal court in April. Giddens has said he plans to cooperate in the cases, sharing documents in exchange for any recoveries.
Because Giddens’s agreement calls for general estate creditors to be paid only after customers are paid in full, the customers “are clearly not properly incentivized to litigate fully,” Freeh said in an objection.
MF Global Holdings, run by former Goldman Sachs Group Inc. Co-Chairman Corzine until his Nov. 4 resignation, filed the eighth-largest U.S. bankruptcy in October after a $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations led to margin calls.
Corzine and other officers, a group of lenders and a group of creditors also objected to Giddens’s agreement with customers. In court papers, Corzine and 23 other individuals said that as potential defendants, they opposed Giddens’s plan to give the plaintiffs whatever materials he wants.
The agreement also would limit their right to get information and make them pay for some of it, the individuals said. Creditors called Giddens’ attempt to manage the class-action recoveries “another back-handed attempt” to “allocate general estate assets to customers.”
The lender group, whose members say they own more than $1.4 billion in customer claims, said there were no provisions that assure the claims will be “fully prosecuted or fairly settled for the benefit” of all creditors.
PricewaterhouseCoopers LLC, MF Global’s former auditor, also objected to the agreement insofar as it would have transferred any claims against the accounting firm, saying the claims “are not assignable.” Glenn said he will rule later in court papers on how the agreement will apply to PricewaterhouseCoopers.
Giddens replied to the objections by saying that he’s a more appropriate overseer of the lawsuits. Freeh has “some inherent conflicts in opposing this motion because individuals currently employed” by him are defendants in the litigation, Giddens said.
Freeh has predicted that MF Global’s customers will eventually recoup all of their money, while Giddens has said distributions should be “in the 90 percent range.”
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).