The other MF Global money mystery: trustee's fees

Former MF Global customers will have to wait a little longer than expected to learn how lucrative the broker's liquidation has been for trustee James Giddens and his law firm.

A bankruptcy judge on Monday approved a June 8 deadline requested by Giddens for reporting fees and expenses to the court, meaning the bankruptcy could be in its eighth month before fees are made public.

Giddens had initially gained court approval for a schedule under which his firm, Hughes Hubbard & Reed, would submit its first fee report in March or April. The schedule was revised to bring all lawyers and advisers in the case onto the same filing time table, Giddens' spokesman, Kent Jarrell, said on Monday.

While long, the time frame is not unheard of, and would be about on par with the first fee reports in other major bankruptcies, including the liquidations of Lehman Brothers and Bernard Madoff's fraudulent fund.

But issues related to money in MF Global's bankruptcy are especially sensitive because the broker's former trader clients are missing an estimated $1.6 billion, which vanished from their accounts as the company hurtled toward bankruptcy.

Hughes Hubbard has been getting paid from the corporate estate of MF Global Inc, the company's broker-dealer unit. That estate is separate from assets deemed to be customer property.

Giddens, the lawyer tapped to lead recovery efforts, initially faced criticism from customers who felt high hourly rates could be disincentives to a speedy recovery.

Hughes Hubbard has billed nearly $170 million in three and a half years in the liquidation of Lehman Brothers' broker-dealer, which it also leads. While a comparison is tenuous given differences in the scopes of the cases, Giddens' hourly rate for Lehman -- $891, including a 10 percent discount -- should remain about the same.

Giddens and his legal team have accepted 10 percent rate reductions in MF Global under Hughes Hubbard's agreement with the Securities Investor Protection Corp, an insurance fund for securities customers that taps trustees like Giddens to liquidate failed brokers.

Some expenses normally billable to bankruptcy estates, including many meals and taxi rides, are not billable under the firm's agreement with SIPC, Jarrell said.

The Jon Corzine-led MF Global went bankrupt on Oct. 31 after revealing exposure to risky European debt. Giddens in February said the broker improperly used customer money to fund corporate transactions as it sank, creating a roughly $1.6 billion hole in customer accounts.

STILL GETTING PAID

Hughes Hubbard is still receiving payments. According to court papers, the firm each month submits fees to SIPC and, pending the agency's approval, is immediately eligible for 85 percent of its fees, with the rest paid after bankruptcy court approval.

The firm must seek cumulative court approval of fees every four to five months, with creditors given the chance to voice objections, Jarrell said. Courts can reject fees as unreasonable, duplicative, unnecessary or otherwise improper.

If fees were rejected after being paid, Hughes Hubbard would likely credit the total toward future bills rather than give money back, Jarrell said.

Jarrell declined to reveal Hughes Hubbard's earnings so far but said the money is being paid from the corporate assets of MF Global Inc. SIPC, which has $1.5 billion in its coffers, would pay the fees if MF Global's bankruptcy estate could not fund them, the agency's CEO, Stephen Harbeck, told Reuters.

Some customers have argued they should be entitled to the broker's corporate assets ahead of Giddens as a result of MF Global's mishandling of their money, creating potential discord over Giddens' fee requests.

But other customer groups have backed off those demands.

"Our attorneys just told us, 'No way, that's not going to happen,'" John Roe, a spokesman for advocate group the Commodity Customer Coalition, said on Tuesday. "It's just not the way bankruptcy works. Trustees have to be paid."

The coalition is still trying to reduce the cost of the case by other means, most notably by pushing to convert it to a more streamlined liquidation under Chapter 7 of the bankruptcy code, Roe said.

"Certainly we think we could have gone through Chapter 7 quickly and more cheaply," Roe said.

The liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.

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