A JPMorgan Chase & Co. unit reached a $100 million settlement with MF Global Inc. liquidators over the bank’s conduct in the days before and after the brokerage’s collapse, paving the way for the return of money to its former customers.
The agreement follows a year of negotiations and the review of more than 100,000 documents, according to papers filed yesterday in U.S. Bankruptcy Court in Manhattan. It resolves claims against JPMorgan arising from transfers of customer property in the days leading up to MF Global’s bankruptcy and the company’s actions as one of the brokerage’s primary banks and repository for customer property.
James W. Giddens, a trustee for the liquidating brokerage, seeks to return an additional $200 million to customers as a result of the settlement, which also recoups $29 million in MF Global funds held at the bank and completes a previous return of $417 million by JPMorgan, according to a statement.
“This is a favorable and economically sound agreement ending what would have been a costly, protracted, and uncertain legal battle,” Giddens said in yesterday’s statement. “Without the agreement, additional substantial distributions would have been delayed for at least two or three years.”
MF Global Holdings Ltd., the parent company once run by former New Jersey Governor and Goldman Sachs Group Inc. Co-Chairman Jon Corzine, filed for bankruptcy in 2011 after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most indebted nations. Most MF Global client funds were held in JPMorgan accounts, and the bank was a key lender to the parent before it collapsed in the eighth-largest U.S bankruptcy.
The agreement announced yesterday resolves all outstanding matters between JPMorgan and the MF Global estate, its customers and creditors, said Jennifer Zuccarelli, a spokeswoman for the New York-based bank.
Giddens examined JPMorgan’s role as the main custodian of MF Global’s customer property, its activities as a clearing bank, and its actions after the bankruptcy, including liquidating customer property and using proceeds to satisfy its secured claims against the brokerage.
The most significant issues resolved by the settlement involved transfers of customer property to satisfy obligations, including the shift of $175 million to MF Global’s U.K. unit, Giddens said. JPMorgan asserted “that the bank did not know and otherwise had no basis to know that the transfers were of customer funds,” lawyers for Giddens wrote in court papers.
JPMorgan will get a $60 million general unsecured claim in the brokerage liquidation and the companies won’t pursue any other claims against each other, according to court papers.
The settlement doesn’t involve class-action lawsuits brought against individuals at MF Global, including Corzine, according to court papers. Potential lawsuits against the “primary wrongdoers” in MF Global’s collapse may provide further recoveries, lawyers for former customers including Paradigm Global Fund said in court papers filed yesterday.
Former customers bringing class-action lawsuits support the settlement because it avoids “the significant risk that a smaller recovery -- or indeed, no recovery -- might result after protracted litigation against JPMorgan that could last years,” according to court papers.
The proposed settlement will be submitted to the judge overseeing the class-action suits, U.S. District Judge Victor Marrero, at the same time as it goes to U.S. Bankruptcy Judge Martin Glenn, Giddens said.
If approved by the courts, Giddens projected that distributions to former domestic customers will be more than 93 cents on the dollar, exceeding the predicted range of 75 percent and 82 percent for foreign customers. Remaining shortfalls may be repaid through other litigation or distributions of unallocated property, Giddens said.
The JPMorgan agreement secures the release of about $90 million to KPMG LLP, the administrators of MF Global’s U.K. unit, Giddens said. MF Global in January settled its conflict with KPMG over which unit owned disputed assets, giving Giddens an additional $600 million to return to clients and creditors.
JPMorgan was agent for a $1.2 billion loan to MF Global’s parent company before its failure, and also loaned money to the brokerage and other affiliates, according to court documents.
The brokerage and parent went into separate bankruptcies. The parent is under control of a Chapter 11 trustee. Giddens was named brokerage trustee by the Securities Investor Protection Corp.
The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-02790, in the same court.