The trustee for MF Global's bankrupt parent company will have additional time to review a $160 million settlement that would benefit the failed broker-dealer's customers, a person familiar with the matter said last week.

The extension of the deadline indicates that Louis Freeh, trustee for the parent company, may be raising questions about the proposed deal.

James Giddens, the attorney liquidating MF Global's broker-dealer unit, earlier this month announced an agreement in which exchange regulator CME Group Inc would pay $160 million to the broker-dealer. Under the deal, $130 million of the pot would go toward repaying MF's former commodities trader customers, who lost millions of dollars when MF Global collapsed.

According to the person familiar with the matter, Freeh is in talks with Giddens in hopes of resolving any issues and avoiding filing a formal objection to the settlement in bankruptcy court.

Recent history suggests the discussions could center on disputes over how money recovered by Giddens should be allocated.

As trustee for the parent company, Freeh's job is to recover money for the parent's creditors, including lenders like JPMorgan Chase & Co. Giddens, conversely, is charged with seeking and recovering money for MF's former customers.

The CME settlement pot does not include customer money, court papers show, yet Giddens seeks to give most of it to customers, rather than other creditors like the MF parent, under various regulations that allow him such discretion, and under CME rules, which he says call for the money to be sent to customers.

Freeh said earlier that some of those regulations should not apply in MF's bankruptcy.

A spokeswoman for Freeh declined to comment. A spokesman for Giddens also declined to comment.

MF Global, headed by former New Jersey Gov. Jon Corzine, collapsed in October after its exposure to European sovereign debt spooked investors. Its commodity trader customers are missing an estimated $1.6 billion that vanished from accounts when it was improperly used to cover liquidity gaps as the company sank, Giddens said in a February report.

BROAD IMPLICATIONS

How the CME settlement is doled out could form a basis for how MF's estate is ultimately divvied up, going to the heart of how much money various creditor classes will ultimately recover.

If contentious, the allocation issue could pit institutional creditors like the parent against former commodities trader customers fighting for recovery of a finite pool of assets.

It could also inform Freeh's litigation strategy going forward. The smaller the MF parent's share of settlement and litigation proceeds, the greater its incentive to litigate against Giddens and other parties to maximize recoveries.

Freeh has claimed that the MF Global parent is a major creditor of the broker-dealer, having funded it through proceeds from bonds and loans. A lawyer for Freeh said at a court hearing earlier this month that around $1 billion of the parent's money was funneled to the broker and has since disappeared.

The CME settlement consists of cash that MF Global had put into CME's guarantee fund, as well as CME shares, seats at CME exchanges, and cash in MF Global's own trading account.

Giddens' effort to allocate the money to customers revives a still-unresolved debate that dates to December, when Judge Martin Glenn, who oversees MF Global's bankruptcy and the broker-dealer's liquidation, asked parties where they stood on how funds should be allocated.

Giddens invoked Commodity Futures Trading Commission regulations that allow trustees to allocate non-customer money to customers who face shortfalls. The CFTC supported the use of the regulations in the case.

Freeh, along with a committee of creditors of the MF Global parent, disagreed. Among their arguments were that the regulations do not apply to broker liquidations under the Securities Investor Protection Act, like MF Global's.

A spokesman for the CFTC was not immediately available.

Giddens also said SIPA gives him discretion to reallocate the estate's money to customers in certain cases, and pointed to CME rules that call for money at the exchange to go to customers rather than other creditors.

A CME spokesperson declined to comment. In a statement issued when the settlement was reached, CME said the deal would help "get as much money to all customers as quickly as we can."

The CFTC and the Securities Investor Protection Corp, the organization that tapped Giddens to lead the wind-down, submitted legal filings last week expressing support for the settlement.

In court papers outlining the settlement, Giddens made clear his stance that some non-customer money must go to customers.

"There is and will remain a shortfall of customer property," he said. "And that shortfall will need to be bridged by allocation of non-segregated property to customer."

A hearing to approve the settlement is slated for July 11, but the date could change in the wake of the deadline extension.

The MF Global parent's bankruptcy is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. The brokerage liquidation is In re MF Global Inc, in the same court, No. 11-2790.