* Trustee Freeh secures extension of deadline to object to
* Settlement calls for $130 mln from CME to former MF
* Parties in talks, hoping to avoid objections from Freeh
By Nick Brown
June 28 The trustee for MF Global's
bankrupt parent company will have additional time to review a
$160 million settlement that would benefit the failed
broker-dealer's customers, a person familiar with the matter
said on Thursday.
The extension of the deadline, which was previously
Thursday, indicates that Louis Freeh, trustee for the parent
company, may be raising questions about the proposed deal.
James Giddens, the attorney liquidating MF Global's
broker-dealer unit, earlier this month announced an agreement in
which exchange regulator CME Group Inc would pay $160
million to the broker-dealer. Under the deal, $130 million of
the pot would go toward repaying MF's former commodities trader
customers, who lost millions of dollars when MF Global
According to the person familiar with the matter, Freeh is
in talks with Giddens in hopes of resolving any issues and
avoiding filing a formal objection to the settlement in
Recent history suggests the discussions could center on
disputes over how money recovered by Giddens should be
As trustee for the parent company, Freeh's job is to recover
money for the parent's creditors, including lenders like
JPMorgan Chase & Co. Giddens, conversely, is charged
with seeking and recovering money for MF's former customers.
The CME settlement pot does not include customer money,
court papers show, yet Giddens seeks to give most of it to
customers, rather than other creditors like the MF parent, under
various regulations that allow him such discretion, and under
CME rules, which he says call for the money to be sent to
Freeh said earlier that some of those regulations should not
apply in MF's bankruptcy.
A spokeswoman for Freeh declined to comment on Thursday. A
spokesman for Giddens also declined to comment.
MF Global, headed by former New Jersey Gov. Jon Corzine,
collapsed in October after its exposure to European sovereign
debt spooked investors. Its commodity trader customers are
missing an estimated $1.6 billion that vanished from accounts
when it was improperly used to cover liquidity gaps as the
company sank, Giddens said in a February report.
How the CME settlement is doled out could form a basis for
how MF's estate is ultimately divvied up, going to the heart of
how much money various creditor classes will ultimately recover.
If contentious, the allocation issue could pit institutional
creditors like the parent against former commodities trader
customers fighting for recovery of a finite pool of assets.
It could also inform Freeh's litigation strategy going
forward. The smaller the MF parent's share of settlement and
litigation proceeds, the greater its incentive to litigate
against Giddens and other parties to maximize recoveries.
Freeh has claimed that the MF Global parent is a major
creditor of the broker-dealer, having funded it through proceeds
from bonds and loans. A lawyer for Freeh said at a court hearing
earlier this month that around $1 billion of the parent's money
was funneled to the broker and has since disappeared.
The CME settlement consists of cash that MF Global had put
into CME's guarantee fund, as well as CME shares, seats at CME
exchanges, and cash in MF Global's own trading account.
Giddens' effort to allocate the money to customers revives a
still-unresolved debate that dates to December, when Judge
Martin Glenn, who oversees MF Global's bankruptcy and the
broker-dealer's liquidation, asked parties where they stood on
how funds should be allocated.
Giddens invoked Commodity Futures Trading Commission
regulations that allow trustees to allocate non-customer money
to customers who face shortfalls. The CFTC supported the use of
the regulations in the case.
Freeh, along with a committee of creditors of the MF Global
parent, disagreed. Among their arguments were that the
regulations do not apply to broker liquidations under the
Securities Investor Protection Act, like MF Global's.
A spokesman for the CFTC was not immediately available.
Giddens also said SIPA gives him discretion to reallocate
the estate's money to customers in certain cases, and pointed to
CME rules that call for money at the exchange to go to customers
rather than other creditors.
A CME spokesperson declined to comment. In a statement
issued when the settlement was reached, CME said the deal would
help "get as much money to all customers as quickly as we can."
The CFTC and the Securities Investor Protection Corp, the
organization that tapped Giddens to lead the wind-down, on
Thursday submitted legal filings expressing support for the
In court papers outlining the settlement, Giddens made clear
his stance that some non-customer money must go to customers.
"There is and will remain a shortfall of customer property,"
he said. "And that shortfall will need to be bridged by
allocation of non-segregated property to customer."
A hearing to approve the settlement is slated for July 11,
but the date could change in the wake of the deadline extension.
The MF Global parent's bankruptcy is In re MF Global
Holdings Ltd, U.S. Bankruptcy Court, Southern District of New
York, No. The brokerage liquidation is In re MF Global Inc, in
the same court, No. 11-2790.