A trustee's report, filed by James W. Giddens on February 6, 2012, (as quoted by the Chicago Tribune; 02/7/12) indicates that MF Global began withdrawing money from segregated customer accounts on October 26, 2012, just before the company was audited. According to the report, prior to October 26, the amounts transferred were less than $50 million, but as the financial demands on MF Global increased, more and more money from segregated funds was used to cover the shortfall.Caught up in that was approximately $1.2 billion of customer money. Clients of MF Global have so far recovered around 72 cents for every dollar that was missing, as the bankruptcy trustee, Mr. Giddens, winds down the broker-dealer. Nygaard says that recovery of the remaining money is possible, but is unlikely to occur through the bankruptcy trustee's efforts.
"Almost all of the $1.2 billion is no longer 'missing,'" Nygaard says. "It didn't 'vaporize.' It has been traced largely to MF Global customers who closed their accounts and cashed out, and to clearing firms and other legitimate creditors of MF Global. The trustee told customers who haven't received more than 72 cents that it will be very difficult—if not impossible—to recover much more for them. That will only happen if he can establish in litigation that customer funds were knowingly accepted by recipients with no claim to them."
In other words, if customers hope to recover more money through the trustee, they have to wait until lengthy litigation concludes and may still not recover all their money.
If, however, customers file an arbitration, Nygaard says there is a better chance of recovering the rest of the missing money, and in a much more timely manner.
"We are representing groups of customers of MF Global for group arbitrations to recover the money," Nygaard says. "An arbitration will be faster and more effective than waiting for this anticipated, lengthy litigation in bankruptcy court. The other concern is that in bankruptcy litigation, the cost of the lawsuit will be borne by whatever assets are brought in. So, even if the lawsuit is successful, the costs may outweigh any money the clients might receive."
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In arbitration, the claim is not filed against a bankrupt company; rather, it is filed against the controlling persons of the company, including Jon Corzine, who are individually liable for wrongdoing of the firm under commodities statutes. Companies such as MF Global have errors and omissions insurance that cover executives of the firm. According to a report in Bloomberg (02/6/12), MF Global had $190 million of liability policies for its executives. Nygaard says the odds of customers recovering their funds are much greater with arbitration. Furthermore, the rules of arbitration require that any awards be paid within 30 days.Nygaard says she plans to file the first group arbitration by March 31. Clients who would like to be involved in that arbitration should contact her office as soon as possible, to be among the first to potentially recover their missing money.
