MF Global customer payback deal earns court approval

Thu Jan 31, 2013 4:14pm EST

* Settlement resolves intercompany claims between MF Global entities

* Former customers to receive another $500 mln-$600 mln in payback

By Nick Brown

NEW YORK, Jan 31 (Reuters) - A bankruptcy judge on Thursday approved a settlement under which many former MF Global customers would get back 93 percent of the value of their accounts, a major step in the wind-down of Jon Corzine's collapsed brokerage.

Judge Martin Glenn greenlighted the deal at a hearing in U.S. Bankruptcy Court in Manhattan, about six weeks after trustees for MF's UK and U.S. broker-dealers, as well as its parent, announced the deal to resolve billions of dollars in intercompany claims.

"Needless to say, the court is very pleased," Glenn said. "The result that everybody wants to see happen is the maximum amount of funds possible being returned to the estate and being distributed to customers."

The agreement avoids litigation in the UK that could have dragged MF Global's liquidation out for years. It will allow James Giddens, the trustee for MF's U.S. trader customers, to return another $500 million to $600 million to those customers. That would increase total payouts to about 93 percent of the value of their accounts, from the 80 percent or so most have recovered so far.

Customers who traded on UK exchanges have only received 5 percent recovery. The settlement will allow their payouts to eventually increase to between 75 percent and 82 percent, James Kobak, an attorney for Giddens, said at Thursday's hearing.

Interim distributions will begin "in the next few weeks," but it is unclear how long it will take for the full proceeds of the settlement to reach customers, Giddens' spokesman, Kent Jarrell, told reporters after the hearing.

MF Global, run by former Goldman Sachs head and New Jersey Governor Corzine, collapsed in October 2011 when its exposure to risky European sovereign debt spooked investors.

In addition to the claims of its many financial creditors, trader customers were clamoring for money after regulators discovered a hole in trading accounts valued at roughly $1.6 billion.

In a report last year, Giddens said MF Global inappropriately used customer money to cover liquidity gaps as it teetered on the brink. Corzine has denied any wrongdoing. He and other former executives face civil claims from customers over their role in the debacle, but have not faced criminal charges.

Certain procedural conditions, including negotiations over legal claims involving JPMorgan Chase & Co, must be met before the settlement can become effective. Glenn asked the trustees to turn in a progress report on those conditions in a month.

The trustees expect the conditions to be met, and Jarrell said payouts will begin even before the settlement becomes official, using reserve funds already in Giddens' possession.

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, in the same court, No. 11-2790.

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