Court OKs $160 mln pact between CME, MF Global trustee

Fri Aug 10, 2012 2:23pm EDT

* $130 mln of the pot will go to former MF Global customers

* Judge says accord reasonable, provides immediate benefit

* Questions remain over trustee's authority to allocate money

By Nick Brown and Jonathan Stempel

Aug 10 (Reuters) - The trustee liquidating bankrupt MF Global Holdings Ltd's brokerage unit won court approval to recover nearly $160 million from exchange regulator CME Group Inc, much of which will help repay customers and creditors.

About four-fifths, or $130 million, of the total recovered under the agreement reached in June between CME and James Giddens, the trustee liquidating the MF Global Inc unit, will go to former customers of that brokerage.

The agreement had won support from the Commodity Futures Trading Commission and the Securities Investor Protection Corp, which helps customers of failed brokerages.

In approving the accord on Friday, U.S. Bankruptcy Judge Martin Glenn in Manhattan said it "clearly falls within the range of reasonableness" required under bankruptcy law and "provides immediate benefit" to the brokerage's estate.

MF Global customer accounts were frozen in the wake of the parent company's Oct. 31, 2011 bankruptcy.

The New York-based company's collapse was hastened after former Chief Executive Jon Corzine's $6.3 billion bet on European sovereign debt worried investors, counterparties and credit rating agencies.

Last week, Giddens said he has distributed or was distributing 80 percent of what commodity customers were owed with respect to their segregated accounts, but that a $1.6 billion shortfall remained.

Giddens has said plugging the gap will require paying customers with money that was not originally segregated for them -- such as the CME settlement pot, which consists of cash in MF Global's own trading account, CME shares and seats at CME exchanges. Louis Freeh, the trustee unwinding MF Global's parent company, has questioned whether Giddens has that authority.

The deal was scheduled to go before Judge Glenn for approval last month but was delayed after Freeh raised questions about it. While Freeh chose not to formally challenge the CME accord, he reached an agreement with Giddens reserving his right to challenge it retroactively if Giddens effects similar reallocations.

Freeh and Giddens, who are working on behalf of different creditor constituencies, have butted heads over how recovered money should be allocated. Freeh has said non-customer money should be split between general creditors, such as the MF Global parent. The more money the parent recovers from the broker-dealer, the more money it has to pay its own creditors, like JPMorgan Chase & Co.

The customers' share of the CME settlement will be split evenly between those who traded on U.S. exchanges and those on non-U.S. exchanges. The remainder will be available for other creditors.

The full settlement pot is actually about $175 million, but Chicago-based CME will keep $16.5 million to cover various claims related to the bankruptcy.

Giddens on Monday said he has received roughly 35,000 claims relating to MF Global's bankruptcy, including close to 28,000 commodities customer claims.

Based on claim determinations through that date, he estimated that the total value of commodities customer claims will be around $7 billion.

The case is In re: MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-02790. The parent's bankruptcy case is In re: MF Global Holdings Ltd in the same court, No. 11-15059.