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MF Global Customers May Get Paid Out In Full, Trustees Wait for the Court's Decision

Jan 30 2013

On one gloomy Monday morning in October 2011 the U.S. broker MF Global filed for Chapter 11 bankruptcy.  For those of you unfamiliar with this, Chapter 11 is a chapter of the United States' Bankruptcy Code, which permits and regulates reorganization under the bankruptcy laws. Explained simply, Chapter 11 lets a bankrupt company request federal protection, and allows for a trustee to operate the debtor's business. 

When MF Global went down with a bang and $1.6 billion of customer money went missing, James W. Giddens was appointed as a trustee. It was him who had to deal with the US part of this huge mess, together with Louis J. Freeh, the trustee tending to the company's British unit. 
For a very long time, there was silence on the line and (former) MF Global customers had no idea whether they would get their money back. The Commodities Futures Trading Commission (CFTC) has been working with the trustees of MF Global and PFG Best – another broker that went bankrupt shortly after, but sadly so far there has been no resolution. 
Earlier today the New York Times published an article giving MF Global's American customers some hope. Up until now, the possibility of recovering seemed quite unrealistic – but it appears that money has miraculously appeared and other funds have been relocated from the British branch of MF Global and US traders are likely to paid out. This happens thanks to the deal that James Giddens and Louis Freeh stroke in December. Their agreement stipulates that the administrator will pay approximately $500 million to $600 million to Giddens, and with that their dispute over the client assets trapped overseas will end. 
“This is the eighth-largest bankruptcy in history and we’ve been able to sprint ahead on some occasions, but this is a marathon,” Mr. Giddens’s spokesman, Kent Jarrell, said in a statement.
The deal will be presented to a judge on Thursday, January 31, 2013. If it is approved, Giddens will be in position to return up to 93% of the money to US customers of MF Global. People involved in the case are even suggesting that the clients could possibly be paid out in full. 
While this is definitely good news, there are couple of “but's”: one, the non-US customers of the broker may still see shortfalls in the payoff, and two, justice won't exactly be served as it is still not figured out who is to blame for the entire bankruptcy fiasco, and why was it allowed to happen. 
Jon S. Corzine, the former New Jersey governor who headed MF Global when it collapsed, is still under federal investigation. It seems that investigators don't seem to have enough to make a criminal case against Corzine and suspect that the broker's downfall was caused bu chaos and lack of control, rather than outright fraud. Nonetheless, they continue to gather evidence in hope to understand what really happened. 
UPDATE: Late on Thursday, January 31, 2013, Judge Martin Glenn approved a payout that will bring most of MF Global’s United States customers to 93 percent of their original investment.
TAGS: MF Global  PFG Best  forex broker  bankruptcy  CFTC  federal investigation 

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