* Around $700 mln still in dispute with UK entity
* Trustee hold $1.4 bln in reserve for potential liability
* Says about $3.9 bln now returned to customers
By Nick Brown
NEW YORK, Feb 10 The shortfall in funds
available to pay back customers of MF Global's
collapsed brokerage is at least $1.6 billion and could be more,
the trustee liquidating the brokerage said on Friday.
Until now, trustee James Giddens had estimated a shortfall
of about $1.2 billion, although he also said most of the funds
had now been tracked down - although recovering them from other
entities may be protracted.
"The $1.2 billion number is history," Kent Jarrell, a
spokesman for Giddens, told Reuters.
The latest figures provided marginally more clarity for MF
Global's thousands of commodity futures customers, who are still
missing about 28 percent of their funds, although multiple
variables could still cause the shortfall to rise or fall.
MF Global Holdings Ltd, the parent of the brokerage, filed
for bankruptcy on Oct. 31 amid fears about its exposure to risky
European debt. In a report on Monday, Giddens said the firm's
use of customer funds to cover corporate transactions led to a
The new estimate for the size of that shortfall is broken
down into two main components: roughly $700 million for
customers who traded on foreign exchanges, the rights to which
are in dispute with MF Global's UK entity; and about $900
million for customers who traded on domestic exchanges.
The estimate was reached through the processing of loss
claims submitted by customers. Giddens is estimating a total of
$6.9 billion in claims, $3.9 billion of which has already been
That leaves $3 billion outstanding. Giddens is keeping
another $1.4 billion in reserve for now, yielding the estimated
$1.6 billion gap.
But whether that gap represents a decrease or an increase
from the trustee's previous $1.2 billion shortfall estimate
proved a surprisingly complex topic.
"It's apples and oranges," Jarrell said. "We're changing the
definition a little bit."
Because Giddens never explained exactly what the $1.2
billion figure included, it was unclear how much of it
represented a shortfall for U.S. exchange customers and how much
was made up of the disputed money in the UK for foreign exchange
With more clarity, Giddens now says $700 million is
comprised of the disputed money in the UK. That leaves only a
$900 million gap in U.S. exchange customers' segregated
accounts. But the net result is a larger gap ($1.6 billion)
between the amount of customer claims and the funds Giddens now
holds to pay those claims.
Another important caveat could raise the figure even more:
the $1.4 billion under Giddens' control is in reserve in case of
liability for claims likely to be submitted by other parties,
including MF Global affiliates, Jarrell said.
Every dollar used from that reserve fund to cover such
liability is one dollar less that won't go to customers. In
other words, the $1.6 billion estimate represents a best-case
scenario in which the brokerage's entire $1.4 billion reserve
can go to customers.
Whatever size the gap turns out to be, Giddens will try to
close it by pursuing claims against the affiliates, banks,
exchanges and other counterparites purportedly holding customer
"The trustee is eager to make additional distributions to
former MF Global Inc customers as soon as possible," Giddens'
team said in a statement.
Customer advocate group the Commodity Customer Coalition said
plenty of gray area still remains.
"There's no doubt that there are duplicate claims or claims
that will be disallowed that will bring the number down," John
Roe, the group's co-founder, told Reuters.
"He's looking at it from two sides of the ledger. He's
taking what they've recovered and what people have claimed. We
still don't really know what the hole is."
The brokerage liquidation is In re MF Global Inc, U.S.
Bankruptcy Court, Southern District of New York, No. 11-2790.