MF Global's Shortfall May Exceed $1.2 Billion, Trustee Says
Nov. 22 (Bloomberg) -- The shortfall in MF Global Inc.'s U.S. segregated customer accounts may exceed $1.2 billion, more than double what was previously expected, said the trustee overseeing a liquidation of the failed brokerage.
That would mean customer accounts are missing about 22 percent of their total of $5.4 billion. A shortfall of 11 percent had been previously estimated by a person with knowledge of probes into the firm's collapse. James Giddens, the trustee, said yesterday that forensic accountants and investigators are working “around the clock,” and the estimate may change.“Our goal is still a 100 percent return, and right now we're very close to 60 percent,” said Kent Jarrell, a spokesman for the trustee. “If we continue to recover more, that will determine how much more we can distribute.”
Jarrell said the $1.2 billion estimate came from the team of accountants and investigators, who met with the trustee last night, prompting him to publish the revised figure. The spokesman declined to comment on whether there was news as to who was responsible for the funds or how they were withdrawn or used, citing ongoing investigations from the Department of Justice and other agencies.
Assets Under Control
Giddens said yesterday that distributing 60 percent of what should have been in commodity customers' accounts, already under way, will take $1.3 billion to $1.6 billion, or almost all of the assets he has within his control. While he expects the transfer will occur in early December, he doesn't have access to funds beyond $1.6 billion, he said in a statement.
The shortfall is primarily in commodity accounts. Money frozen in securities accounts, of which there are only 400, will be refunded through a separate segregated account, Jarrell said. MF Global Inc. had 38,000 commodity clients.
“He is very close to exhausting the funds under his control,” according to the statement, which noted that the amount of assets the trustee can access is different than the amount of the shortfall. Recovering funds from foreign depositories may take more time, Giddens said.
Giddens will coordinate with trustees overseeing the liquidation of MF Global's overseas brokerage units, and U.S. customers who made foreign investments will get distributions from a separate account than those with just U.S. activity, Jarrell said.
Accounts Frozen
Customer accounts with $5.45 billion were frozen Oct. 31, the day after a unit of the New York-based brokerage reported a “material shortfall” in customer funds that are required to be segregated under rules of the U.S. Commodity Futures Trading Commission. MF Global Holdings Inc., the parent that had been run by former New Jersey Governor Jon Corzine, filed for bankruptcy to apportion returns to creditors.
Giddens has so far brought $3.7 billion under his control, all of which has come from the former U.S. depositories of MF Global Inc., according to his statement. He has already distributed $1.5 billion in collateral, and is currently returning $520 million in cash to customers.
Giddens faces requests at a 3:00 hearing in Manhattan bankruptcy court today from customers who'd said they wanted an immediate return of some funds. One customer, Thomas A. Butler, said that with an 11 percent shortfall, customers should be able get at least 85 percent back right away.
Giddens answered critics of his procedures in a court filing yesterday. Many former customers of the defunct broker- dealer asked for all or a percentage of their assets without acknowledging “the apparent shortfall,” he said in the filing.
Once the trustee has distributed 60 percent of the shortfall, there will only be an 18 percent margin left to distribute if the shortfall is $1.2 billion. The costs of the trustee and forensic investigators will also need to come out of the available funds.
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