Law and Regulations

It's found money for customers of defunct MF Global

Stephen Yang | Bloomberg | Getty Images

The trustee of MF Global's defunct brokerage has received approval from a bankruptcy judge for a plan that will repay its former commodity trader customers in full.

The move, approved by Judge Martin Glenn at a hearing Tuesday in U.S. Bankruptcy Court in Manhattan, will repay customers by reallocating to them some funds initially earmarked for non-customer unsecured creditors, according to the trustee's spokesman, Kent Jarrell.

The ruling comes just after the two-year anniversary of the $40 billion collapse of MF's parent company, which was run by former New Jersey Governor and ex-Goldman Sachs chairman Jon Corzine. It was the eighth-largest Chapter 11 bankruptcy.

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The case became a political firestorm after regulators found that the company had misused customer money, leading to panic in the trading world and discussions on Capitol Hill over whether brokerages need better regulation.

The trustee, lawyer James Giddens, made a rare public appearance at Tuesday's hearing, saying he was "delighted" at the prospect of paying customers in full, according to a copy of his written statement.

"In the opening moments of the liquidation proceeding, it seemed inconceivable that we would even consider the possibility of 100 percent return of property owed to former customers of MF Global," Giddens said.

Glenn's approval cements a result that has been widely expected for months. Giddens has estimated that about 98 percent of money has already been returned to customers who traded on U.S. exchanges, and 74 percent to customers who traded on foreign exchanges.

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He has estimated that a total of about $1.6 billion went missing from customer accounts due to MF Global's misuse of customer funds, which was an effort by the company to stave off its collapse as it teetered on the brink in 2011.

The company at the time was quickly sinking as its exposure to $6.3 billion in risky European sovereign debt had investors running for the hills.

The company, along with Corzine and other former executives, have faced civil lawsuits by Giddens and former customers over the shortfall in customer accounts, but have not been hit with criminal charges.

The executives, including Corzine, have denied wrongdoing.

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As trustee, Giddens' job was to recover as much money as possible for trader customers of MF's brokerage. Most of the recovery so far has come from key settlements with MF Global counter-parties, including JPMorgan Chase and CME Group.

Last year, Giddens said there was still likely to be a hole in customer funds, and that he would seek to bridge it by reallocating a portion of the money earmarked for non-customer unsecured creditors.

At the time, Louis Freeh, a separate trustee in charge of MF Global's parent entity, challenged whether Giddens had the authority to do that. The sides ultimately settled their differences.

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Giddens on Tuesday said the reallocation is designed to get customers their money as quickly as possible, and that he expects that the money being taken out of the general unsecured creditor pool will be recouped from future settlements.

The cases are In re: MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790; and In re: MF Global Holdings Ltd in the same court, No. 11-15059.

—By Reuters.