Latest MF Global payback plan goes before judge

Thu Apr 12, 2012 12:00am EDT

* Trustee Giddens seeks permission to distribute $685 mln

* Hearing set for Thursday in Manhattan bankruptcy court

By Nick Brown

April 12 (Reuters) - The trustee liquidating MF Global's brokerage will ask a bankruptcy court on Thursday to release $685 million to former MF Global customers, a plan already introduced in court filings that has been criticized as neglecting affiliates of the failed firm.

Trustee James Giddens is responsible for recovering as much money as possible for customers, but his plan stands to be criticized by Louis Freeh, the trustee managing the assets of MF Global's parent company.

In March, Freeh said in a court filing that he supported the distribution, but felt it evidenced neglect of claims from MF Global affiliates in favor of those of public customers.

Freeh is responsible for recovering assets of MF Global's corporate estate or to its creditors.

Commodities customers have received about 72 percent, or $3.9 billion, of the value of their accounts, while affiliate customers have not received any payback, according to Freeh.

The latest payout would raise recovery to about 80 percent for commodities customers who traded on U.S. exchanges. They would receive about $600 million. About $50 million would go to customers who traded on foreign exchanges, with $35 million left for certain customers holding physical items like gold bars.

Customer accounts were frozen when MF Global was forced into bankruptcy after revealing exposure to risky European debt. In a February report, Giddens said that MF Global had improperly used customer money to cover corporate transactions, creating a massive hole in client funds.

The size of that hole, which is uncertain, is a point of contention for Freeh. He demanded in court papers that Giddens do more to explain how he arrived at his estimate of a $1.6 billion shortfall when futures exchange CME Group Inc has ballparked the gap at not being higher than $600 million.

MF Global's creditors' committee, which includes JPMorgan Chase & Co and Bank of America Corp, piggybacked on Freeh's attack in court papers last week, demanding more transparency as a condition for approving Giddens payout plan.

Giddens countered that neither Freeh nor the creditors have a stake in the issue, which pertains to public customer funds.

RELEASE OF CLAIMS

Also standing in Giddens' way are objections from customers who have said the trustee's distribution would unfairly require them to release potential legal claims against third parties and assign those claims to Giddens.

Customers in court filings said they were wary of parting with claims as a prerequisite to receiving money from Giddens, and that they had not hired him and were not personally obligated to him.

Giddens said the release applies only to claims related to money already repaid to customers and would serve to minimize duplication in the filing of legal claims.

The bankruptcy is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.

The brokerage liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.