MF Global Bankruptcy: Latest Commentary and Analysis

“The trustee liquidating broker- dealer MF Global Inc. said distributions of collateral in customers’ accounts are ‘dependent upon assets available and there is no assurance of a 100 percent return.’

The trustee, James Giddens, got court permission yesterday to transfer $520 million in assets to about 23,300 accounts. While planning a third transfer to include a ‘few hundred’ accounts that haven’t had distributions so far, Giddens said the assets available for segregated commodities accounts are ‘substantially less’ than his estimate of claims that will be allowed.” (MF Trustee: No Promise of 100% Collateral Return by Linda Sandler at Bloomberg) 

It’s a classic “good-news, bad-news” play: MF Global trustee James Giddens sets goal of returning 100% of MF Global customer assets, as quickly as possible, but warns that there are no guarantees that it will be possible. For your reference, here’s the latest commentary and analysis on the MF Global bankruptcy:

SIPC Trustee Provides Updates on Prospective Claims Process (Reed Smith):

“The Securities Investor Protection Act requires the Trustee to run a claims process, subject to Bankruptcy Court approval, where customers file claims with the Trustee. After claims are deemed allowed by the Trustee, the Trustee will distribute to customers the cash and securities held in the customers’ accounts as of October 31, 2011. Distributions may be made on a piecemeal basis, so customers may not receive all of their property in a single distribution. No individual account transfers will be made outside of the claims process. If there are not sufficient funds to cover the allowed claims, any deficiencies will, subject to certain exceptions, be covered by the Securities Investor Protection Corporation up to $250,000 in cash or up to $500,000 for securities, up to a maximum cap of $500,000 in total.” Read more»

MF Global Proceedings Test Multiple Insolvency Statutes (Sutherland Asbill & Brennan LLP):

“The multi-layered [insolvency] proceedings will surely complicate the liquidation of the enterprise. For one thing, although the Unregulated Debtors may ultimately achieve some value from their equity or other interests in the regulated brokerages, it may be some time before they can monetize those interests. It is therefore unclear exactly how the Unregulated Debtors will survive in the meantime, with no meaningful cash flow of their own.

More important, multiple layers of insolvency regimes exist even within the single SIPA proceeding. Because MFGI was dually registered both as a securities broker-dealer and a futures commission merchant (FCM), at least two specialized insolvency laws apply. SIPA provides the framework for the liquidation of a broker-dealer. SIPA also applies the Bankruptcy Code, to the extent that it is not inconsistent with SIPA provisions.” Read more»

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