The Wall Street Journal
written by Dan Strumpf and Jerry A. Dicolo
Thursday December 8, 2011
Brokerage customers of MF Global Holdings Ltd. don't know where all of their money is. But they have gone to court to try to protect it.
Some customers are objecting to an MF Global motion for approval to use $26 million under a credit line from J.P. Morgan Chase & Co. The customers say it is still unknown whether missing customer funds are mixed in with the company's cash and don't want the money spent until that is determined.
The failed company already has received permission to use some of the money to continue operations and is seeking approval to use the full amount.
As much as $1.2 billion in MF Global customer money is still unaccounted for since the firm's Oct. 31 bankruptcy, the trustee overseeing the liquidation of the firm's brokerage has said. If that customer money is discovered, customers would get it, the trustee says.
But if the money isn't found, the customers will have to get in line with MF Global's creditors for whatever remains of the failed company are left, according to court filings and the trustee.
Meanwhile, J.P. Morgan has sought "super-priority" creditor status for the $26 million, a position that some customers also contest in court filings.
J.P. Morgan spokeswoman Mary Sedarat says the firm's request for those funds to be first in line is "standard operating procedure," in a bankruptcy case.
Separately, on Friday, U.S. Bankruptcy Judge Martin Glenn is expected to rule on the proposed transfer of $2.1 billion in frozen customer funds to new firms.
The motion, if approved, would effectively reunite former MF Global customers with cash that would make them about two-thirds whole.
Exchange operator CME Group Inc. supported that proposal in a filing this week. In arguing for the transfer, it said creditors "should not see a penny of value from MF Global's estate until all customer and other claims at the MF Global level have been paid 100%."
Lawyers for customers say their clients shouldn't end up in the bankruptcy case as creditors in the event their money isn't located.
"Customers are not creditors," said Sander Esserman, a partner at Stutzman, Bromberg, Esserman & Plifka, a law firm representing some MF Global customers. "These customers gave their money to the third-party broker for safekeeping, and supposedly were protected by laws and contracts and are not supposed to be creditors. It's not like we did a service for MF Global and didn't get paid.…It's a totally different relationship."
Other lawyers uninvolved in the case say customers could have a difficult time prevailing with that argument if their money isn't found.
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