STOCK MARKET WATCH -- Wednesday, 15 August 2012

[Demeter]

4. MF Global Trustees Differ Over Amount Customers Will be Repaid

WHO ARE YOU GOING TO BELIEVE? NOT LOUIS FREEH!

http://dealbook.nytimes.com/2012/08/01/mf-global-trustee-expects-customers-will-recoup-cash-in-the-90-range/?ref=business

An MF Global trustee damped hopes that customers would recover all of their missing money from the bankrupt brokerage firm, telling lawmakers on Wednesday that a $1.6 billion gap remained. In testimony before the Senate Agriculture Committee, James W. Giddens predicted that clients could recoup in the "90 percent range" of their cash. Mr. Giddens, the trustee tasked with plugging the gap in customer money, has so far retrieved about 80 percent of the funds. "We'd very much like to pay every customer 100 percent, however, it will be a time-consuming, difficult and uphill battle," he told lawmakers. Mr. Giddens also updated lawmakers on his concern about wrongdoing at the top rungs of MF Global.

His warnings came in stark contrast to testimony from another MF Global trustee, Louis Freeh, who is responsible for making the firm's creditors whole. In written testimony for the hearing on Wednesday, Mr. Freeh referred to the $1.6 billion gap as an "alleged shortfall." Mr. Freeh, a former director of the Federal Bureau of Investigation who did not attend the hearing because of a conflicting commitment, said he believed "all of the customers of MF Global Inc. eventually will be made whole."

The dueling statements stem from the divergent missions of the two trustees, who have spent months clawing over a limited pool of assets. Bankruptcy law is fuzzy as to which group takes priority. Mr. Giddens, in charge of unwinding the brokerage arm of MF Global, must return money to customers who suffered a shortfall when the firm collapsed last Oct. 31. But Mr. Freeh, as the advocate for creditors like banks and other companies, is pursuing more than $2 billion in claims against the brokerage unit. That pursuit could give Mr. Freeh the incentive to forecast a happy ending for MF Global customers. If the customers come up short, then Mr. Freeh's effort might be seen as an aggressive attempt to deprive clients of their money. But Mr. Giddens noted that the $2 billion or more in claims had forced him to keep a cushion of cash on hand that otherwise would belong to customers. The demands, he said, "stand as a very significant impediment."

"We appreciate Mr. Freeh's apparent support and confidence in our ability," Mr. Giddens said, but he cautioned that the hunt for cash could yield mixed results.

Mr. Freeh based his calculation on the ever-growing number of assets that Mr. Giddens has collected in recent weeks - and the hope that various courts would allow the funds to go to customers. It is even possible that Mr. Giddens will recover an amount in excess of the shortfall...