By Joseph Checkler
The trustee in charge of MF Global Holdings Ltd. (MFGLQ) said he
will allow the U.S. government and the trustee unwinding the
company's failed brokerage, MF Global Inc., to go further back in
their investigation into the company's books concerning segregated
funds, which still have a reported shortfall of more than $1
billion.
In a Wednesday filing with U.S. Bankruptcy Court in Manhattan,
the trustee, Louis J. Freeh, said he will waive attorney-client
privilege and turn over documents and other information about MF
Global's segregated accounts from the period of July 1, 2011, until
the company's Oct. 31, 2011, bankruptcy filing. Previously, he had
agreed to open MF Global's books for the two-week period leading up
to its bankruptcy.
A spokesman for James W. Giddens, the trustee unwinding the
brokerage, said his office has been in "regular communication" with
Mr. Freeh's office.
"The trustee and Judge Freeh are cooperating to the greatest
extent possible," said the spokesman, Kent Jarrell, referring to
Mr. Freeh's time as a federal judge. The two trustees have had some
disagreements throughout the case, but Mr. Jarrell called the
filing "another step in the ongoing cooperation" between the
two.
A judge will consider approving the stipulation at an Oct. 11
hearing.
Mr. Giddens has recovered about $5.3 billion of the $5.5 billion
to $6 billion in U.S. customers' segregated funds held at the
brokerage and has returned more than $4.7 billion to customers via
a series of bulk transfers arranged by CME Group Inc. (CME) in the
weeks following MF Global's demise last year, as well as interim
distributions. Despite the return of that money, he still estimates
a $1.6 billion shortfall in customer accounts, money that should
have been matched dollar for dollar. Mr. Giddens, as well as
regulators, has been investigating the shortfall since the
beginning of MF Global's bankruptcy case.
Mr. Giddens is winding down MF Global's broker-dealer business
under the authority of the Securities Investor Protection Act,
which governs the liquidation of failed brokerage firms. The
liquidation is separate from the bankruptcy case of MF Global
Holdings, the parent company, which filed for Chapter 11 protection
last fall. That estate is now being overseen by Mr. Freeh, a former
director of the Federal Bureau of Investigation.
In separate reports earlier this year, Mr. Giddens criticized
the sovereign-debt investments that drove MF Global out of business
and said he might pursue claims against the man who directed those
bets, former Chief Executive Jon S. Corzine. Mr. Freeh's report
said the parent might have about $2.3 billion in claims against the
brokerage business.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@dowjones.com
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