Reuters: Bankruptcy News: UPDATE 1-Judge not sold on latest MF Global payout plan

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UPDATE 1-Judge not sold on latest MF Global payout plan Apr 12th 2012, 16:58 Thu Apr 12, 2012 12:58pm EDT * Trustee Giddens seeking permission to distribute $685 mln * Judge skeptical of requirement that customers release legal claims By Nick Brown April 12 (Reuters) - A bankruptcy judge on Thursday had doubts about a portion of a plan by MF Global trustee James Giddens to release $685 million to the broker's former customers. The trustee was seeking approval at a hearing in U.S. Bankruptcy Court in Manhattan to pay $600 million to customers who traded on U.S. exchanges, $50 million to those who traded on foreign exchanges, and $35 million to certain customers who hold physical property, like gold bars. Judge Martin Glenn held off on ruling and appeared to take issue with a condition that would require customers to release potential legal claims against third parties and assign those claims to Giddens. Customers in court filings had said they were wary of parting with claims as a prerequisite to receiving money from Giddens. James Kobak, an attorney for Giddens, said at the hearing that the release applies only to claims related to money already repaid to customers, and would serve to streamline the recovery process. It would also guard against the risk that customers could use litigation to recover from third parties money that might otherwise be recovered by Giddens and shared among customers, according to Kent Jarrell, a spokesman for Giddens. Glenn was not sold, pressing Kobak to point to legal authority for the move. Kobak acknowledged that such authority exists for securities customers, but not for commodities customers. "There's nothing that says you can do it, but nothing that says you can't," Kobak said. Glenn was concerned that myriad class action lawsuits pending against MF Global executives could be dismissed if claims are reassigned to Giddens. "I'm only going to approve this if there's a legal basis," Glenn said. Customer accounts were frozen when MF Global was forced into bankruptcy after revealing exposure to risky European debt. In a February report, Giddens said that MF Global had improperly used customer money to cover corporate transactions, creating a massive hole in client funds. The company's executives, including ex-CEO Jon Corzine, are facing more than 20 class action lawsuits from customers. Commodities customers who traded on U.S. exchanges have received about 72 percent, or $3.9 billion, of the value of their accounts through previous distributions by Giddens. The latest payout would raise recovery to about 80 percent. CRITICISM FROM THE PARENT Glenn was more decisive in brushing aside criticism of Giddens' payout plan from other parties, namely Louis Freeh, the trustee for MF Global's parent company. Freeh had said the plan evidenced neglect of claims from MF Global affiliates in favor of those of public customers. Freeh is responsible for recoverying assets belonging to the MF parent or its creditors, while Giddens is tasked with recouping money for clients. Freeh, along with some of MF Global's largest creditors, said Giddens has been opaque on the status of his investigation, the whereabouts of customers' money, and exactly which assets comprise that money. They demanded an explanation of how Giddens reached his estimate of a $1.6 billion customer account shortfall, when futures exchange CME Group Inc has ballparked the gap at not being higher than $600 million. Glenn said transparency was important, but said Giddens should not be expected to provide updates of his investigation prior to his next interim report, due June 4. Kobak did provide one update on his attempts to recover customer money, saying Giddens feels he may have "more than colorable" legal claims against third parties who may hold customer money. Kobak did not say who the parties were. 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, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790. Link this Share this Digg this Email Reprints

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