* Mulling claims vs “certain individuals” – statement
* Considering civil claims for breach of fiduciary duty
By Nick Brown
April 12 (Reuters) – The trustee liquidating MF Global’s
broker-dealer said he may bring civil lawsuits
against some of the company’s employees in connection with a
massive shortfall in customer funds created in the days leading
up to its collapse.
Trustee James Giddens said in a statement on Thursday he may
assert claims for breach of fiduciary duty and for violati ng
r ules governing the segregation of client funds. Giddens
referenced “individuals at” MF Global’s parent company and its
broker-dealer, but did not name pote ntial targets.
Giddens’ spokesman, Kent Jarrell, said the individuals
include officers, directors and other employees, but declined to
say whether former Ch ief Executive J on Corzine was am ong them.
Corzine left the company in November, days after MF Global
went bankrupt amid investor fears about its exposure to risky
European debt. According to a February report from Giddens, MF
Global improperly used client funds to cover corporate
transactions as the company sank, creating an estimated $1.6
billion shortfall in customer accou nts.
Corzine’s defense attorney did not immediately respond to a
request for comment.
Corzine in December told a Congressional panel he did not
intend to break laws and did not know what happened to
customers’ money.
Other key officers, including Chief Financial Officer Henri
Steenkamp and General Counsel Laurie Ferber, told a
Congressional panel last month they also did not know what
caused the shortfall. Assistant Treasurer Edith O’Brien was
scheduled to testify but invoked her Fifth Amendment right
against self-incrimination.
O’Brien became central to regulators’ ongoing investigation
into the collapse after Congressional investigators released an
email from her that said a $175 million transfer made last Oct.
28, and which may have included customer funds, was “Per JC’s
[Jon Corzine’s] direct instructions.”O’Brien’s attorney, Evan Barr, declined to comment on
Giddens’ statement.
A spokesman for Gary Naftalis, Abelow’s attorney, declined
to comment. Lawyers for Steenkamp and Ferber did not immediately
return calls seeking comment.
Giddens said in the statement he is “committed” to
negotiating cooperative resolutions with the individuals where
possible.
Jarrell said the trustee’s legal team has already begun
negotiations with some individuals and “is hoping to interview
others.”
CIVIL CLAIMS
Corzine and other current and former executives are already
facing more than 20 civil class action lawsuits from customers
over MF Global’s demise.
Giddens is seeking to require customers to release certain
claims against third parties and assign those claims to Giddens.
The move would come as a precondition for customers to receive
their share of a planned $685 million payout for which Giddens
is seeking court approval.
At a hearing in U.S. Bankruptcy Court in Manhattan on
Thursday, Judge Martin Glenn held off on approving the payout,
voicing skepticism about the requirement to release and assign
claims. Glenn said he was concerned the class actions pending
against the MF Global executives would be dismissed if claims
were reassigned.
Giddens’ lead attorney, James Kobak, said at the hearing
that the release applies only to claims related to money already
repaid to customers, and would serve to streamline the recovery
process.
Chris Larosa, an attorney for the Securities Investor
Protection Corp, the insurance fund for customers of failed
brokers, said customers should not be able to recover money for
themselves which, if recovered instead by Giddens, would be
shared among all customers.
But Glenn pressed Kobak on the legal authority for the
release and assignment, which Kobak acknowledged does not
explicitly exist for commodities claims as it does for
securities claims.
“There’s nothing that says you can do it, but nothing that
says you can’t,” Kobak said.
Giddens is hoping to pay $600 million to customers who
traded on U.S. exchanges, $50 million to those who traded on
foreign exchanges, and $35 million to certain customers who hold
physical property, like gold bars.
Commodities customers who traded on U.S. exchanges have
already received about 72 percent, or $3.9 billion, of the value
of their accounts through previous distributions by Giddens. The
latest proposed payout would raise recovery to about 80 percent.
But “I’m only going to approve this if there’s a legal
basis,” Glenn said.
CRITICISM FROM THE PARENT
Glenn was more decisive in brushing aside criticism of
Giddens’ payout plan from other parties, namely Louis Freeh, the
trustee for MF Global’s parent company.
Freeh had said the plan evidenced neglect of claims from MF
Global affiliates in favor of those of public customers. He also
demanded an explanation of how Giddens reached his $1.6 billion
shortfall estimate when CME Group Inc has ballparked the
gap at not being higher than $600 million.
Glenn said transparency was important, but said Giddens
should not be expected to provide updates on his investigation
prior to his next interim report, due June 4.
Freeh is responsible for recovering assets belonging to MF
Global’s parent company and its creditors, while Giddens is
tasked with recovering funds for customers.
The bankruptcy is In re MF Global Holdings Ltd, U.S.
Bankruptcy Court, Southern District of New York, No. 11-15059.
The brokerage liquidation is In re MF Global Inc, U.S.
Bankruptcy Court, Southern District of New York, No. 11-2790.
