MF Global Commodity Customers Must Be Paid First, CFTC Says

Jan. 18 (Bloomberg) -- MF Global Inc. commodity customers must be paid before all other claimants, including the bankrupt parent company, according to the Commodity Futures Trading Commission.

Court papers by the trustee for MF Global Holdings Ltd., Louis Freeh, contain “errors and misstatements of law” in arguing that commodity laws, which require that customers be “made whole” first, don’t apply to brokerage liquidations, the regulator said in a court filing today. Freeh, representing the parent company creditors, has said money due to them shouldn’t be “diverted” to customers.

If Freeh was right, “the senseless result would be to render inapplicable the key regulations of the Commodity Futures Trading Commission in the largest commodity broker bankruptcy in U.S. history,” the CFTC said. The result would “strip” customers of a remedy, after they entrusted their assets to the brokerage relying on rules for segregating customer money, it said.

Judge’s Instructions

The CFTC was responding to a judge’s instructions to regulators and the trustee to file briefs on the rules governing the brokerage’s distribution of assets. Creditors of the parent company also have been clashing with brokerage customers as each side seeks more money for itself.
...

Click to expand...

J.P. Morgan Chase & Co. has returned roughly $600 million that was ensnared at the bank when MF Global Holdings Ltd. collapsed in October, people familiar with the matter said.

Most of the payments haven't been disclosed publicly, and a bankruptcy trustee representing customers of the failed securities firm might pursue J.P. Morgan for as much as several hundred million dollars in additional claims, according to a person familiar with the investigation.

Still, the New York bank's payments are a sign of progress in efforts to fill the estimated $1.6 billion hole left in customer accounts at MF Global. Money recovered by the bankruptcy trustee, James Giddens, eventually will be passed along to customers, though the amount depends on the outcome of continuing legal squabbles and negotiations.
...

Click to expand...