This article originally appeared in Futures Magazine.
The MF Global Inc. (MFGI) trustee put out an update on the status of his investigation following a hearing in front of Bankruptcy Judge Martin Glenn on Thursday indicating a more active pursuit of civil charges against certain officers of MF Global and MF Global Holdings itself.
Giddens stated, “Based on his investigation of conduct, allocation of responsibilities and reporting with respect to the segregated customer accounts, the Trustee believes that there are claims he may assert against certain responsible individuals at MFGI and Holdings (and Holdings itself) for, among other things, breach of fiduciary duties owed to both MFGI and its customers, and violations of the segregation requirements of the Commodity Exchange Act.”
The statement highlights tension developing between the MFGI trustee and Louis Freeh, the trustee for MFGH. MFGH claimed that MFGI was not properly sharing information in a recent filing in response to the most recent interim distribution plan. In its reply, MFGI noted that that the MFGH motion, filed late, included “incorrect statements about the discussions and exchanges of information between the two trustees.”
It also expressed dismay that the Chapter 11 trustee would insert itself in a motion involving the distribution of segregated customer property.
It is unclear what prompted today’s statement as it was clear from day one that the requirement to segregate customer funds were violated. A point not lost on customer representatives. “We’ve argued that recoveries should be available for customers at MF Global’s holding company since day one and we’re glad the SIPA Trustee is now on board,” notes John Roe, co-founder of the Commodity Customer Coalition. “This means that now, more than ever, it is necessary to convert the bankruptcy proceeding for MFGH from chapter 11 to chapter 7. Customers clearly will have recoveries at MFGH and it’s time to stop the plundering of assets going on at MFGH’s bankruptcy proceeding.”
The MFGI trustee statement goes on to say, “The Trustee is committed to discussing and working cooperatively to the extent possible with representatives of customers, with the goal of recovering customer property for distribution in accordance with the established claims process in the MFGI liquidation.”
MFGI Trustee spokesman Kent Jarrell in elaborating on the statement said they are exploring working together with various plaintiffs’ attorneys who have filed lawsuits against officer and directors of MFGH to see if they can work cooperatively to get former customers made whole.
“It is all about efficiencies. How do you get the most money back to customers?” Jarrell says.
As far as the CCC, they are hoping that there will be money left at the end of the process. “JPMorgan and Bank of America can pay for their own legal expenses, just like commodity customers have been doing, instead of using the creditors committee and MFGH’s assets to prevent customers from being made whole. We have to make sure that when we are able to trace customer assets to MFGH that the lawyers haven’t billed it all out,” Roe says.