A bankruptcy judge shot down an attempt by an MF Global Holdings Ltd. commodities customer to block the firm's executives, including former Chief Executive Jon S. Corzine, from accessing millions of dollars in insurance proceeds.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan on Monday denied Sapere Wealth Management LLC's request for an injunction that would block MF Global's executives from drawing $30 million in available insurance funds while Sapere appeals their right to payment. The insurance covers the costs the executives may face defending themselves against "wrongful act" lawsuits.
Judge Glenn has already shot down as "frivolous" a prior request from Sapere that the insurance funds instead be set aside for it and some 25,000 other commodities customers whose $1.6 billion in funds went missing from MF Global's segregated customer accounts upon its collapse last year. His order Monday says Sapere's latest request doesn't fall in line with well-established legal precedent.
"Settled case law in this circuit and elsewhere establishes that the individual insureds cannot be denied contractually provided insurance protection when their employers are insolvent because others may have claims on the insurance policies as well," Judge Glenn wrote in his order.
The judge added that Sapere's request, filed Friday, "includes a number of misstatements and mischaracterizations" of his prior ruling regarding the insurance funds. Judge Glenn declined to address those in his ruling against the request.
Sapere's attorney couldn't immediately be reached for comment Monday.
The firm had argued it would suffer "irreparable harm" if the executives were allowed to draw the funds while it continues to fight their right to payment, arguing that there is a "substantial likelihood" that it would prevail.
"Every dollar that is spent funding the defenses of the various directors and officers is money that cannot be spent to compensate commodities customers for the cumulative $1.6 billion loss they have suffered from their segregated accounts," Sapere said in court papers.
Several weeks ago, Judge Glenn agreed to free up some $375 million in insurance proceeds over the objections of Sapere and others. He capped executives' use of the funds at $30 million, though he said they could request more later.
"Although [MF Global] commodity customers have unquestionably suffered severe financial harm, accusations of misconduct provide no basis for denying the individual insureds insurance protection under the … policies," Judge Glenn wrote in an opinion dated April 10.
Last week, Glenn denied an appeal by Sapere in its bid to jump ahead in the line of creditors waiting for payment in MF Global's bankruptcy case.
MF Global Holdings, the parent company of the brokerage, filed for Chapter 11 bankruptcy protection on Oct. 31. The brokerage isn't in bankruptcy protection but is being unwound under the Securities Investor Protection Act.