MF Global’s court-appointed trustee James Giddens has recently updated the MF Global bankruptcy website with an explanation of why he is still not releasing money in client accounts [via Bloomberg].The outlook is pretty glum — Giddens message states that until a thorough investigation is completed by all the federal agencies investigating how MF Global moved their money around, he will not be able to release funds. He said he could not predict when that process may be done.
(Refresher: Federal agencies currently investigating MF Global include the FBI, SEC and CFTC.)
About 50,000 MF Global accounts that held open futures trades have been transferred to new brokers, Bloomberg reported, but only about 60% of the collateral for the trades were moved with the futures. Accounts for customers with just cash also remain frozen, the Wall Street Journal reported.
Giddens said he could not transfer all of the collateral because he needed to retain enough funds for a pro rata distribution to all customers who file a claim for the money in their accounts. But before he can start divvying up funds, Giddens said he would need to receive all claims from customers.
In the case that customers do not receive all of their funds after the pro rata distribution — which is almost guaranteed because the $600 million remains missing — they will be able to file a claim as a creditor to MF Global. But, that puts them in same pot as banks that issued loans for MF Global, such as JP Morgan and Deutsche Bank. Not a good prospect.
Another cushion could be the Securities Investor Protector Corp., which will insure up to $250,000 cash or up to $500,000 in securities (but limited at a total of $500,000) for any fund deficiency. But seeing as many clients had millions of dollars in their MF Global accounts, it might not be the most soothing safety net. Crain’s also points out that SIPC does not insure futures/commodity accounts.
This is sure to further provoke the ire of clients, many whom already blame Giddens for the troubles with retrieving their money because Giddens froze the accounts upon the discovery of the $600 million. Several MF Global customers Business Insider spoke to also blamed Giddens for their predicament.
James Koutoulas, a commodity trading advisor and lawyer, said he is working pro-bono advising MF Global clients. One goal is to lobby to remove Giddens from the trustee position or for the court to pay Giddens a fixed-fee, Koutoulas told Business Insider. Koutoulas said he thinks Giddens is prolonging the process in order to make more money.
Bloomberg reported Monday that Giddens had filed to receive payment for his services. Giddens charges $891 an hour, though he’s working at a 10% discount on the MF Global case.
Giddens, a partner at Hughes Hubbard & Reed, is famous for being the trustee for Lehman Brothers – from which he and his law firm earned $169 million.
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