MF Global trustee reports $1.2 billion depository segregation shortfall

By Caroline Salls

Pittsburgh, Nov. 21 - MF Global Inc. liquidation trustee James W. Giddens reported Monday that the apparent shortfall in what the company's management should have segregated at U.S. depositories could be $1.2 billion or more, according to a news release.

The trustee said his current plan to distribute 60% of what should have been segregated in U.S. depositories for all former customers with U.S. futures positions will total nearly all of the assets currently under his control.

According to the release, Giddens brought $3.7 billion under his control to date, all of which comes from the former U.S. depositories of the broker-dealer.

Having already distributed $1.5 billion in collateral, and currently distributing $520 million in cash, leaves $1.6 billion on hand, Giddens reported.

"The previously announced next step, restoring 60% of what is in segregated customer accounts for U.S. futures positions, would require approximately $1.3 to $1.6 billion to implement; that is, virtually all of the assets currently under the trustee's control," the release said.

However, the trustee said efforts to collect other funds from U.S. depositories are continuing around the clock, and the U.S. funds available to him are expected to increase in the coming weeks.

Giddens said this next step is subject to bankruptcy court approval. This transfer is expected to occur in early December, once the current transfer is complete and books and records are reconciled.

The trustee said the matters are further complicated by the fact that assets located in foreign depositories for customers that traded in foreign futures are now under the control of foreign bankruptcy trustees. Giddens said recovery of these foreign assets could take more time.

The trustee's counsel has also told the court that Giddens only has non-customer assets in his immediate control, the release said.

Giddens said the amount of assets he controls is a separate issue from the apparent shortfall in what former MF Global Management should have segregated.

Progress report

According to a progress report released by the trustee, Giddens has received court approval for and moved 14,500 accounts with 3 million open positions, along with $1.5 billion in collateral, representing roughly 60% of the collateral for those positions.

The trustee said it also obtained court approval for a second bulk transfer, which is currently underway, to move a percentage of deposits in 23,300 accounts holding cash-only as of the filing date of the bankruptcy.

Giddens said he is planning a third phase of transfers to "true-up" the value of all claimants' distributions to 60% of the net equity of their accounts, including a few hundred accounts not included in the first two bulk transfers.

The trustee and his staff have continued to explore a bulk transfer of all MF Global securities accounts, according to the release.

Giddens said several broker-dealers have conducted and continue to conduct due diligence, but no transferee has agreed to take these accounts, to date.

In addition, the trustee reported that his staff is working to understand the apparent shortfall in customer funds, including an independent investigation of the complex cash movements made by the company before its liquidation.

MF Global Holdings Ltd, a commodity and derivatives broker based in New York, filed for bankruptcy on Oct. 31 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 11-15059.

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