MF Global Trustee Sees $1.6B Customer Shortfall
MF Global commodity customers whose cash vanished when the firm collapsed last year are owed $1.6 billion – up significantly from previous estimates — the trustee tasked with recovering the money said on Friday.
The revised figure reflects growing concerns that the trustee cannot claw back $700 million in customer money trapped overseas. Until now, the trustee did not include the $700 million when projecting the shortfall, hoping to avoid a battle with MF Global’s British arm, where the money is held.
But now the trustee, James W. Giddens, has acknowledged that he is making little headway in recovering the cash from KPMG, the court-appointed administrator for MF Global’s British subsidiary. That money, Mr. Giddens said, was held for American clients who traded on foreign exchanges.
The problem echoes a cross-border fight in the Lehman Brothers bankruptcy, when customer money was trapped overseas. More than three years later, that issue remains unresolved.
Mr. Giddens, who also oversaw the Lehman bankruptcy, might move to sue KPMG to recover the money for MF Global customers, and recently hired a law firm to represent him in London. He also faces a potential clash with Louis Freeh, the trustee responsible for returning money to MF Global’s creditors.
In a statement on Friday, Mr. Giddens’ office said it would “attempt to resolve these claims as quickly as possible, but it is uncertain how long resolution will take,” adding that “it is not known at this time when the trustee will be legally able to make additional distributions.”
The problems stem from October, when MF Global disclosed to regulators that customer money had disappeared from the firm. The disappearance is now the subject of a wide-ranging federal investigation, with prosecutors in New York and Chicago exploring potential wrongdoing and regulators searching for the missing money.
Earlier this week, Mr. Giddens said that his team of investigators had traced most of the commodity customer cash that vanished from MF Global but could not yet claw it back. That cash traveled to banks, clearinghouses and the firm’s own securities customers, according to people briefed on the situation. The statement followed a report by the New York Times, which said that authorities had tracked down a substantial portion of the shortfall.
Still, an exact sum of the at-risk cash remains elusive.
The Commodity Futures Trading Commission, the regulator leading the hunt for the money, has estimated the shortfall at $680 million. Mr. Giddens previously pegged the total at $1.2 billion.
His revised estimate, $1.6 billion, applies only to customers who traded commodities at MF Global. The figure does not include potentially hundreds of millions of dollars owed to the firm’s securities industry customers.
The trustee on Friday cautioned that the number could continue to fluctuate while customer claims are processed and missing money is recovered.
Mr. Giddens, in part, based the revised estimate on information gleaned from claims forms that commodity customers recently filed. The forms show that about 40 percent of commodities customers hail from five states, including Illinois and New York, where the firm had dual headquarters, the trustee said in a statement. Nearly all of the customers have sought claims for less than $100,000.
As the numbers ebb and flow, still three months after MF Global filed for bankruptcy, the delay is weighing on the firm’s customers, ranging from farmers to hedge funds.
Customers who traded in the United States have received about 70 percent of their cash back. But customers who traded overseas have yet to see a penny.
“The trustee is eager to make additional distributions to former MF Global Inc. customers as soon as possible,” the trustee said in the statement.
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