* Court approval is key step in ending MF Global's
* Payout plan would reimburse bulk of JPMorgan's bankruptcy
* Former trader customers expected to get full recovery
By Nick Brown
NEW YORK, April 4 MF Global Holdings
on Friday will seek court approval of a plan to liquidate its
assets and repay creditors, signaling the final stages of its
large and politically-charged bankruptcy.
The collapsed brokerage would repay the bulk of lender
JPMorgan Chase & Co's claim, and would pay unsecured
creditors as much as 34 cents on the dollar under a plan slated
to go before Judge Martin Glenn in the U.S. Bankruptcy Court in
MF Global, led by former New Jersy Gov. Jon Corzine, filed
for Chapter 11 in October 2011 after investors were spooked by
its $6.3 billion exposure to European sovereign debt. It became
a political firestorm when regulators discovered billions of
dollars were missing from the accounts of MF's commodity trader
Corzine and other MF Global officials were ordered to appear
in multiple Congressional hearings, and the FBI, Securities &
Exchange Commission and at least one Congressional committee
The brokerage was found to have misappropriated customer
cash to try to plug liquidity gaps as it faltered. While no
criminal charges have been filed against Corzine, regulators
say his negligent conduct contributed to the firm's demise.
In a report issued on Thursday, Louis Freeh, the former FBI
director and trustee in charge of liquidating MF's estate,
blamed "the risky business strategy engineered and executed by
Corzine and other officers and their failure to improve the
company's inadequate systems."
The report came several months after a similar account from
James Giddens, the trustee working to recover money for the
broker-dealer's trader customers, which concluded that Corzine
mismanaged the firm's growth.
Corzine is facing civil lawsuits from Giddens and former
The plan going before Judge Glenn on Friday lays out how MF
Global will pay back corporate creditors like lenders and
bondholders. JPMorgan, agent on a $1.2 billion revolving credit
facility, is a key player.
Freeh has said that trader customers, while not technically
creditors of the bankruptcy estate, will recover all their
The plan was initially proposed by some of MF's largest
unsecured creditors, led by hedge funds Silver Point Capital,
Knighthead Capital and Cyrus Capital Partners. Freeh cooperated
with the hedge funds on later drafts of the plan.
While the plan is expected to be approved, it does face
three objections, and Friday's hearing is a chance for the
objectors to have their day in court.
The Department of Justice, through its bankruptcy watchdog
arm, the U.S. Trustee Program, said the plan impermissibly
provides for the payment of legal fees for the creditors who
first proposed it, and the release of certain third parties from
Preet Bharara, U.S. Attorney for the Southern District of
New York, echoed the Trustee in balking at the releases.
Sapere Wealth Management, a customer of MF Global's
brokerage, has also filed an objection.
Perhaps the biggest hurdle to approving the plan was
resolved last month, when Freeh and JPMorgan cleared up a
dispute over the value of intercompany claims within the
bankrupt brokerage's estate.
Under the deal, MF's parent entity will subordinate $275
million of its $1.887 billion claim against MF Global's finance
unit below JPMorgan's $1.2 billion claim against the estate.
The effect of the settlement is essentially to enhance
JPMorgan's potential recovery to 76 cents for every dollar of
claims, from 73 percent in an earlier version of the plan.
But the settlement means less payout for unsecured creditors
of MF Global's finance unit, who will see their maximum recovery
dip to 34.4 cents on the dollar from 39 cents previously.
Unsecured creditors of MF's parent entity have a maximum
projected recovery of roughly 34 percent of claims.
The case is In re MF Global Holdings Ltd, U.S. Bankruptcy
Court, Southern District of New York, No. 11-15059.