The MF Global trustee, James Giddens, estimates a $1.2B shortfall in domestic customer segregated funds, and a further shortfall of $800M of foreign secured funds exists unless and until foreign jurisdictions allow that money to be returned by foreign MF Global affiliates to the US broker. However, the CFTC and Giddens take the position that the US broker’s proprietary firm assets will first go toward reducing any such shortfalls before any amount would be paid to creditors.
Assuming the bankruptcy judge accepts this position, a key question would then be just how much firm assets there are. The US broker reportedly maintained about $1B of regulatory capital not long before the bankruptcy proceeding, but Giddens’ attorneys have stated that they currently control just $200M of firm assets. News reports indicate that MF Global worked to sell a large amount of securities in the week before the bankruptcy filing, and it is possible that some securities involved with collateralized borrowings such as repurchase transactions were taken and sold by lenders. Analysts speculate that proceeds from such sales could flow back into the MF Global estate with time, and the trustees attorneys have indicated that they intend to pursue litigation to try to bring funds back into the company. It could also be that there are substantial intercompany receivables whereby foreign affiliates, in their own foreign insolvency proceedings, owe money to the US broker. While there is currently a great deal of uncertainty and lack of information, MF Global securities that should be valueless if customers are not made whole continue to trade at prices that indicate many market participants believe MF Global customers will eventually receive all of their money.
Neal R. Stevens
Of Counsel
nstevens@SRCattorneys.com
312 565.1045 tel (chi) | 212 334.7948 tel (nyc)
Schuyler, Roche & Crisham, P.C
www.SRCattorneys.com
