Aug. 22 (Bloomberg) -- MF Global Inc. can’t get court approval for a settlement with the U.S. Commodity Futures Trading Commission until the defunct broker determines whether an admission of wrongdoing will cause insurers to deny coverage to its directors and officers, a judge said.
U.S. Bankruptcy Judge Martin Glenn in Manhattan today ordered a trustee for MF Global to try to resolve the issue with insurers. If that effort fails, the trustee may have to pursue litigation, Glenn said.
“I’m withholding approval for you to enter the consent order with the CFTC,” Glenn said.
The settlement over MF Global’s collapse calls for the company to repay customers in full and pay a $100 million civil penalty if it has money left over. MF Global’s trustee also must admit to “the allegations pertaining to liability against MFGI based on the acts and omissions of its employees,” according to court papers.
The company’s former managers, including ex-New Jersey Governor and onetime Goldman Sachs Group Inc. Co-Chairman Jon Corzine, face a class-action lawsuit. MF Global trustee James Giddens is cooperating with plaintiffs in the case, which is in mediation under U.S. District Judge Victor Marrero.
What MF Global’s insurers will be willing to pay in legal settlements “has got to be up front and center,” Glenn said today.
The outcome of the class action will affect the size and timing of further distributions, Giddens has said. Giddens still expects to be able to “move forward with an allocation order that would allow a 100 percent distribution as quickly as possible this fall,” Kent Jarrell, a spokesman for the trustee, said in a statement after today’s hearing.
MF Global Holdings Ltd., the brokerage’s parent company, filed for bankruptcy on Oct. 31, 2011, after a $6.3 billion bet on bonds of some of Europe’s most indebted nations. The company listed assets of $41 billion and debts of $39.7 billion.
Glenn said the CFTC seems to be joining the Securities and Exchange Commission in steering away from settlement language in which parties neither admit or deny wrongdoing.
“I’m not making criticisms,” Glenn said. “But it obviously presents issues here today.”
Separately, James Kobak, a lawyer for Giddens, told Glenn that company will receive more than $300 million from a resolution with its U.K. unit. The expected amount was $290 million, according to Jarrell.
“Money is moving starting today in getting up to 98 percent back to former customers who had domestic accounts,” Jarrell said. The U.K. payment will be distributed starting next week to ex-customers with foreign accounts, he said.
The holding company’s Chapter 11 case is In re MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-bk-02790, in the same court.
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