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Thursday, August 30, 2012

MF Global Trustee Calls for Settlement, Not Suits

Since shortly after the collapse of MF Global, cross-border litigation has been on the horizon concerning distribution of funds by KPMG in the UK.  Trustee Louis Freeh, who projects that the various MF Global bankruptcy estates will have enough money to pay back customers, is calling for related settlement talks.

Per the Wall Street Journal:

August 29, 2012
By AARON LUCCHETTI

Louis Freeh, the trustee for bankrupt securities firm MF Global Holdings Ltd., MFGLQ 0.00%called for settlement talks with other bankruptcy administrators in the U.S. and U.K. amid a clash over how to recover money for the company's customers and creditors.
The proposal was made by Mr. Freeh in a court filing Wednesday afternoon that also outlined his opposition to a plan by a separate trustee, James Giddens, to join several plaintiff lawsuits against former MF Global officials.
The move by Mr. Freeh, a former director of the Federal Bureau of Investigation, comes one month after he submitted congressional testimony projecting that the various estates had enough money to pay back customers. Both steps indicate that Mr. Freeh, whose interests as parent-company trustee have sometimes diverged from lawyers trying to recover money for MF Global customers, is looking to find ways to unlock the logjam.
The mess grew out of the rushed bankruptcy filing of MF Global Oct. 31. The firm, run by former New Jersey governor and Goldman Sachs Group Inc. GS -1.25%Chairman Jon S. Corzine, fell into distress when investors and trading counterparties fled after they grew concerned that MF Global had taken outsized bets on European sovereign bonds.
Mr. Giddens was appointed to represent the customers of MF Global's U.S. brokerage operation, while Mr. Freeh, as trustee for the parent company, represents the company's creditors, which include hedge funds and banks such as J.P. Morgan Chase JPM -1.45%& Co.
Mr. Giddens has argued that customers of the firm's U.S brokerage arm, which include farmers, ranchers and other commodity market players, have about $1.6 billion missing from their accounts. Much of that money is tied up overseas or at other financial institutions. Mr. Giddens is trying to get some of it back by joining plaintiff lawsuits against former MF Global executives including Mr. Corzine.
Mr. Freeh opposed that idea, but added in a 15-page filing that the trustees should try to get in a room and settle all their issues, rather than sue each other and piling up legal bills that ultimately take away money from customers and creditors.
"The most efficient and economical use of the resources of the various estates is a cooperative approach," said Mr. Freeh's court filing, submitted by law firm Morrison & Foerster in U.S. bankruptcy court in the Southern District of New York. The filing added that a "global resolution" of all claims rather than further litigation between the various parties was the preferred approach. "The time is ripe for full-scale negotiations," it said.
Mr. Giddens responded through a spokesman that he and Mr. Freeh "are cooperating to the greatest extent possible. Because of their different roles in the proceedings, [Mr. Giddens] and Mr. Freeh have obligations to different parties."
One of the biggest sums in dispute, about $700 million, is tied up in the U.K. Mr. Giddens says that money belongs to U.S. customers of MF Global. The administrator, KPMG LLP, insists it has the right to distribute the money under U.K. law. The dispute likely won't be decided by U.K. courts until next year at the earliest. KPMG couldn't be reached to comment.
In his filing, Mr. Freeh's lawyers argued that Mr. Giddens's effort to join plaintiff lawsuits against Mr. Corzine and others represented an attempt to "assign claims that belong to" MF Global's general estate to MF Global customers.

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