The trustee liquidating MF Global Holdings Ltd's broker-dealer unit on Wednesday urged a bankruptcy judge to approve a settlement under which exchange regulator CME Group Inc would return $160 million to the unit's estate.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan expressed no concerns at a hearing about MF Global's $160 million settlement, which has the support of the Commodity Futures Trading Commission. No one else raised objections in court.
The judge said he would make his decision later. In the past Glenn has often stated his concerns about proposed settlements in open court, suggesting he may be inclined to give his approval to the settlement.
Trustee James Giddens plans to allocate $130 million of the sum to commodity trader customers who lost money when the MF Global parent company went bankrupt, a controversial decision that had threatened to derail the settlement.
Customer accounts were frozen when MF Global went bankrupt last October after its European debt exposure scared away clients, counterparties and investors.
While Giddens has since returned about 80 percent of that cash, he said customers still face a $1.6 billion shortfall because MF Global improperly commingled customer and MF Global's money.
Plugging the gap, he has said, will require allocating to customers money that was not originally segregated for them, such as the CME settlement pot, comprised of cash in MF Global's own trading account, CME shares and seats at CME exchanges.
Giddens and Louis Freeh, the trustee liquidating MF Global's parent company, have been fighting for months over whether Giddens has the authority to effect such reallocation. The CME settlement was delayed after Freeh questioned it.
Freeh has argued that non-customer money should be split between other creditors of MF Global's broker-dealer, including the parent. The more money it receives from the broker-dealer, the more money it has to pay back its own creditors, including JPMorgan Chase & Co.
While Freeh chose not to formally challenge the CME accord, he reached an agreement with Giddens last month, reserving his right to challenge it retroactively if Giddens effects similar reallocations.
A lawyer for Freeh on Wednesday said the allocation fight may never happen, and Freeh in written testimony to the Senate Agriculture Committee last week said he believes there will be plenty of money to pay back customers, with some left over for other creditors.
Giddens has countered that closing the shortfall in customer funds will require dipping into non-customer funds.
James Koutoulas, who heads an advocate group for former MF Global customers, fears that the deal-making delays any resolution to the broader dispute over how to allocate money.
"While we like the settlement," Koutoulas told Glenn, "we don't like the fact that it required Freeh going back and forth with Giddens to fight over his authority, and that he reserved the right to fight over it in the future."
The brokerage liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.