MF Global Clients May Have to Share Cash
By Linda Sandler and Tiffany Kary – Nov 9, 2011 12:01 AM ET
MF Global Inc.’s commodity customers may be required to share some of their cash with other clients unless money missing from some accounts is found, said the head of the group overseeing the liquidation of the broker-dealer.
“Distribution of the assets will be pro rata, if there’s insufficient there to fulfill all obligations,” said Stephen Harbeck, president of the Securities Investor Protection Corp., or SIPC.
About $593 million in commodity customer funds are unaccounted for, according to a person with knowledge of regulatory probes into the failure of the New York-based firm.
The trustee liquidating the brokerage, James W. Giddens, has transferred 17,000 accounts to other firms, out of 50,000 commodity accounts that he said he would relocate, while releasing almost $1.6 billion in collateral, said Kent Jarrell, his spokesman. Many remaining accountholders may have to file claims for their assets, which have to be shared fairly with other claimants, Jarrell said.
Unless the missing cash is found, people hoping to recover 100 cents on the dollar may have to give up some of it to other customers, Harbeck said yesterday a phone interview.
“Giddens can’t let out more than a low percentage of assets before he knows what he owes to all commodity customers,” Harbeck said.
By law, while SIPC can compensate securities customers for missing cash, it can’t advance funds to commodity customers to replace cash, he said.
MF Global’s parent listed $39.7 billion in debt and $41 billion in assets in its bankruptcy filing on Oct. 31. The company was run by former New Jersey Governor Jon Corzine, who was previously co-chairman of Goldman Sachs Group Inc. (GS), until his resignation from MF Global, which was announced Nov. 4.
Customers of MF Global are asking when they’ll get their cash back, according to e-mails to Bloomberg News. If they have to file claims, the trustee must first get court approval for a system to handle claims and mail forms, Jarrell said yesterday in an e-mail.
A trustee’s duty is “to identify and marshal assets available to satisfy customer claims and to maximize the estate for all stakeholders in an orderly and fair process,” he said.
Commodity accounts that haven’t been transferred, along with securities accounts, will “most likely be subject to the claims process,” he said. Giddens is trying to find brokers to take “bulk” transfers of security accounts, Jarrell said.
Giddens froze 150,000 customer accounts on Oct. 31, including the 50,000 commodities accounts that he said he aimed to transfer to other futures brokers.
MF Global commodity traders sought court permission yesterday to transfer cash out of the brokerage’s accounts, saying they believe the company has the funds needed to make whole each of the accountholders.
Thomas A. Butler Jr., James H. Barton Jr., Stuart Satullo and Adam Loos asked for an order that would let them withdraw 85 percent of their cash or transfer it to another registered future commission merchant, according to court papers. The men said they had all liquidated their accounts with the brokerage and held only cash. As customers, they should be given priority over creditors of the bankrupt estate, the group said.
Butler, president of Butler Brokerage Corp., is a floor broker at Intercontinental Exchange who said he regularly trades commodity futures contracts on behalf of himself and clients. He had $576,310.54 in his accounts after he liquidated his positions Oct. 31 upon hearing of the bankruptcy, Butler said in court papers.
Satullo had $200,020, Barton had $1.7 million and Loos had $6,000 in their respective accounts as of Nov. 7, according to court papers.