Yesterday, MF Global Inc. liquidation trustee James W. Giddens, filed an application to the bankruptcy court to establish claims procedures for MF Global brokerage customers who have had their cash frozen for over two weeks now, as well as the broker's general creditors. While this would seem a step in the right direction, the proposal falls far short of what could be done to provide relief for MF Global customers, while imposing further unnecessary delays. The proposal was filed with a motion for an expedited hearing on the matter to be conducted the very next day (today, in fact, at 3:30 pm), which was granted minutes later by the bankruptcy judge, according to the docket.
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Per the proposal, claim forms would be mailed to MF Global customer on November 28 and be posted on the trustee's website, whereafter customers would have two months, extended up to six months in some cases, to file claims. Other documents filed suggest there would be a 60% payout, but the trustee's proposal does not outline any specific timeline or payout percentage. [Update: In a separate motion, the Trustee has requested expedited payment of 60% of customer funds.] Indeed, his proposal says interim distributions would be made "if possible". This is wholely unacceptable. Based on current estimated missing funds of $600 million, or approximately 12% of segregated account assets, the assumed 60% payout is well below any reasonable threshold, especially considering the CME Group has pledged $250 million to backstop any overpayment by the trustee.
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Trustee Giddens cited the "relatively poor state of the Debtor’s books and records", as we noted yesterday. However, as the below press release of the Commodity Customer Coalition points out, this is irrelevant to the delay of an immediate payout. Per futures industry regulations, each futures customer receives a daily statement of cash and open positions, marked to market. Such statements were produced even on October 31, 2011, the day of the MF Global bankruptcy filing. Many customers continued to receive electronic statements for days afterwards. Thus, what should be in the futures customers' accounts is known to the penny. What assets actually back those statements up is another matter. But, again, estimated losses support a much higher initial payout than 60%, especially with the CME's backstop.
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In the meantime, trustee Giddens will continue to charge $891 per hour against MF Global assets (in addition to research fees of 1% for misdirected wires), and SIPC, inexperienced with futures broker liquidations (and still managing the Lehman liquidation three years and counting), is all the customers have to represent their interests. It is critical that MF Global customers obtain proper representation on what might currently be a compromised creditor committee.
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Full press release of the Commodity Customer Coalition follows.
Commodity Customer Coalition
190 South La Salle Street, Suite 3000
Chicago, IL 60603
FOR IMMEDIATE RELEASE
312-933-6564
November 16, 2011
CONTACT: John L. Roe (jroe@btrtrading.com)
Commodity Customer Coalition to Object to SIPC Trustee’s Claims Process for MF Global Bankruptcy, Propose Faster Alternative Claims Process
In response to the SIPC Trustee’s expedited application for an order from the court to put both securities and commodities customers of MF Global through the same claims process, the Commodity Customer Coalition (“CCC”) is filing an emergency objection to that application and proposing a faster, more efficient claims process to immediately release a majority of customer funds. The CCC issued the following statement:
The Commodity Customer Coalition applauds the Trustee’s recent motion to release 60% of assets held in cash on October 31, 2011. However, that simply isn’t good enough. This only represents a very small portion of the total assets frozen in the bankruptcy. Additionally, the Trustee has proposed a snail mail approach to collecting claims. He says they cannot use the books of MF Global to verify customer claims, but his process will only result in customers mailing him statements based on those books and it will do so over a period of months. Our proposal will streamline this process with a more commonsense approach, affirm the primacy of customer property over the claims of creditors and return funds to their rightful owners in a matter of days, not months.The basis for the Trustee’s proposal is that he cannot give us an accurate accounting of the shortfall in customer funds. But MF Global’s estate has $1.2 billion in excess equity and the CME has thrown him a life line of $250 million if he sends home too much money. MF Global claimed under oath that only $600 million in funds is missing. So the shortfall in funds is irrelevant; the Trustee has 250% over the shortfall. That money is supposedly accounted for on a daily basis to the NFA, CFTC and MF’s DSRO, which was the CME. The Trustee has had over two weeks to sort through this and get clients their money. It’s time to truly expedite this process and make customers whole.
Mr. James Koutoulas, Esq. will appear in person tomorrow to argue the CCC motion before the court. He will make himself available to the press immediately following the hearing on the steps of the courthouse.
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The Commodity Customer Coalition now represents over 7,000 former MF Global customers whose funds have been frozen by the SIPC Trustee. For more information, or to schedule interviews, please contact John L. Roe
(jroe@btrtrading.com, 312-933-6564).
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