The recent failures of MF Global and PFG represent two devastating FCM bankruptcies with substantial shortfalls in customer segregated assets. Each company also has significant firm assets – the MF Global trustee has apparently recovered more than $1.2B of firm assets and while it is too early to know what the PFG trustee will be able to marshal, PFG reported $31M of regulatory capital in its most recent Form 1-FR-FCM filing and there are news reports of an $18M office building, a $7M+ private jet and an array of other businesses and smaller properties.
CFTC regulations provide that if there is a shortfall in customer segregated assets then FCM firm assets should be reallocated to make up the shortfall, giving priority to commodity customers over creditor claims. However, a bankruptcy court has found this rule to be invalid as exceeding the CFTC rule-making authority. The MF Global trustee and the CFTC have voiced their views that the regulation should be upheld, while it is too early for the PFG trustee to have expressed his opinion. Judges in both cases will likely need to decide whether to uphold the regulation, which would provide significant additional recoveries and priority for commodity customers.
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
