MF Global Chapter 11: One Complicated BankruptcyVW Staff
MF Global Holdings Ltd (PINK:MFGLQ) is one, if not the biggest, bankruptcy bust that was directly related to the European crisis. The commodities broker reported $41.0 in pre-bankruptcy assets and $39.7 billion in pre-bankruptcy debts. According to papers it filed with the Manhattan bankruptcy court, Jon Corzine, MF Global’s top executive, betted as much as $6.3 billion on European debt. That bet, according to news reports, scared the market and led to a run on the firm. When Corzine tried to transform MF Global Holdings Ltd (PINK:MFGLQ) into something similar to his former employer, Goldman Sachs Group, Inc. (NYSE:GS), the 230-year old commodities broker collapsed.
The trading of MF Global’s bankruptcy claims has increasingly become active after the trustee overseeing the liquidation of its brokerage unit reported in confidence that customers of the former commodities broker would receive all the money they lost, which totals around $1.6 billion, according to news reports. In October this year, MF Global dislodged Lehman Brothers Holdings Inc. (PINK:LEHMQ) from the top spot of most actively traded bankruptcy claims. There were 565 reported trades of MF Global Holdings Ltd (PINK:MFGLQ) claims totaling $1.64 billion.
James W. Giddens, the trustee overseeing the liquidation of MF Global Holdings Ltd (PINK:MFGLQ)’s brokerage under the Securities Investor Protection Act, stated in court papers dated Dec. 4 that, of the more than 28,000 commodities and securities claims filed against the brokerage firm, only 200 have not been finally resolved. More than 26,000 commodities claims valued at approximately $6.7 billion have already been allowed by the bankruptcy court. With respect to securities claims, more than 200 claims valued at $276 million have been allowed. These achievements were done in only 14 months since the company filed for bankruptcy.
Another trustee, who is overseeing the wind down of the holdings company, estimated in July that claims against the holdings company could exceed $3 billion. Louis J. Freeh, the holdings company’s bankruptcy trustee, said the claims would likely come from U.S. creditors, such as banks, investors and service providers, but that about $1 billion of such estimate could stem from MF Global’s operations in Great Britain, where its biggest unit is located.
Last Saturday, the two trustees reached a settlement of claims with the administrator of the UK unit. The settlement, which is still subject to court approval, means a return of $500 to $600 million to the brokerage units to pay back customers. While the settlement amount is less than the $700 million Mr. Giddens was seeking from the UK unit, it definitely is a lot better than receiving less and spending more on litigation expenses.
The two US trustees also agreed to a global settlement of claims among the three overseers, after both conceded that the legal battle between the two units is taking toll on the bankruptcy estate. Mr. Freeh and Mr. Giddens are at odds with each other in relation to their specific roles. While Mr. Freeh is advocating for the recovery of more than $2 billion from the brokerage unit, Mr. Giddens is also vowed to recover, on behalf of customers, around $1 billion of money that disappeared when the unit filed for bankruptcy. Despite the two trustees’ opposing strategies, the success of both means bigger recoveries of MF Global Holdings Ltd (PINK:MFGLQ) bankruptcy claims purchased by banks and hedge funds at a discount.
In addition to the success already achieved by both trustees, an analyst at SecondMarket pointed out that there’s a lack of other cases with high payoff potential. The two US trustees still continue to resolve claims and litigate in order to obtain more money for the estates. Cases pending litigation includes those against former top executives. Both trustees have impeccable record of success in other cases they are administering. Mr. Giddens is also the trustee overseeing the liquidation of Lehman Brothers’ brokerage firm, while Mr. Freeh, a former director of the Federal Bureau of Investigation (FBI), led the investigation on Pennsylvania State University’s sex abuse scandal allegedly involving Jerry Sandusky and several high-ranking university officials.