A bankruptcy judge on Wednesday allowed the trustee unwinding MF Global Holdings Ltd.'s (MFGLQ) brokerage to combine his claims with individuals suing Jon S. Corzine and other former executives in district court.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan said he would approve the request by the trustee, James W. Giddens, to transfer his claims against Mr. Corzine and other executives and officers to former customers pursuing a civil case in front of U.S. District Judge Victor Marrero. Judge Glenn asked lawyers for Mr. Giddens many questions about the process, which Mr. Giddens said would be more efficient with the judge's approval.
"You have the right to consult but no power to do anything other than consult?" Judge Glenn asked Hughes Hubbard & Reed LLP's James B. Kobak Jr., a lawyer for Mr. Giddens. Mr. Kobak said that was true. The judge ordered Mr. Giddens to make a key change to its proposal: Any settlements over claims must be approved by both Judge Marrero and the bankruptcy court, instead of just Judge Marrero.
"The assignment of the claims to the customer representatives reflects an appropriate exercise of business judgment," Judge Glenn said. The judge said he would rule later on a bid by PricewaterhouseCoopers LLP to have any possible claims against it remain under the purview of the MF Global estate, rather than be transferred.
"We think this will bring tremendous efficiencies and jump-start the discovery and the prosecution of the claims against Corzine and others," said Kent Jarrell, a spokesman for Mr. Giddens, after the hearing. A spokesman for Mr. Corzine declined to comment.
In court papers, Mr. Corzine had said the request by Mr. Giddens to combine his claims would limit his ability to defend himself against some claims, but wording changes to the claims agreement seemed to ease those fears.
Adding to the complexity of the matter is the presence of Louis J. Freeh, the trustee in charge of MF Global's bankrupt parent company. Mr. Freeh has said his goal is to reach a settlement over money that he says the brokerage owes to the MF Global estate. He had objected to the transfer of Mr. Giddens's claims, saying that some of them could belong to the estate. However, changes to the wording in the claims agreement appeared to satisfy Mr. Freeh's lawyer's concerns about whether he'd be able to go after that money in the future.
Mr. Giddens is winding down MF Global's broker-dealer business under the authority of the Securities Investor Protection Act, which governs the liquidation of failed brokerage firms. The liquidation is separate from the bankruptcy case of MF Global Holdings, the parent company, which filed for Chapter 11 protection last fall. That estate is now being overseen by Mr. Freeh, a former director of the Federal Bureau of Investigation.
Mr. Giddens has recovered about $5.3 billion of the $5.5 billion to $6 billion in U.S. customers' segregated funds held at the brokerage and has returned more than $4.7 billion to customers via a series of bulk transfers arranged by CME in the weeks following MF Global's demise last year, as well as interim distributions. Despite the return of that money, he still estimates a $1.6 billion shortfall in customer accounts, money that should have been matched dollar for dollar.