On June 4, 2012, the MF Global Inc. ("MFGI") trustee released his first six month report on the SIPA liquidation of MFGI. In the report, the trustee detailed recoveries the trustee has already achieved and also prospective recoveries on behalf of both MFGI's proprietary accounts and the segregated asset pools for MFGI's former customers. A CFTC rule provides that in the event of shortfall an FCM's firm assets go to make up the shortfall, this would mean that MFGI's proprietary assets would be allocated to make up any extant shortfalls in the segregated asset pools of MFGI's former customers. Creditors will argue that this rule is invalid and a court decision will be necessary to determine if it is upheld.
An analysis of the trustee's report seems to indicate that he is close to recovering sufficient assets to make up the current shortfall and thus make all public customers whole if the CFTC rule is upheld, even if no assets are recovered from the UK affiliate's insolvency proceeding. The trustee reports that the current shortfall is $1.6B, but the trustee also indicated that he is close to settling with MFGI's Canadian affiliate in a manner that would offset about $40M of the Canadian affiliate's omnibus customer claim and recover about $62M of customer funds and that would seem to reduce the shortfall to approximately $1.5B.
The trustee's report indicates in Exhibit 1 that as of April 27, 2012 he had recovered a total of $1.022B of MFGI firm assets. On May 17, 2012, the trustee recovered another $168M, which would have brought the firm assets level to at least $1.19B as of the date of the report. The trustee's report also indicated that the CME Group holds about $175M in MFGI firm assets that should be imminently recoverable through a resolution currently being negotiated, and that unwinding of derivatives positions should soon bring in another $50M of MFGI firm assets. These imminent recoveries should shortly bring the firm assets level to $1.415B. The $50M CME trust would bring the level of assets available to make up shortfall to $1.465B, roughly equal to the $1.5B shortfall level. Given that a substantial number of insider "non-public" commodity customer accounts may be subordinated to non-insider accounts, it appears that enough will soon be recovered to make all non-insider customers whole if the CFTC rule is upheld.
Beyond these recoveries, the trustee continues to pursue more than $800M in customer asset claims and more than $400M in creditor claims in the UK affiliate insolvency proceeding as well as suits against JP Morgan and directors and former MFGI officers that are covered by a substantial D&O policy.
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
