Unsecured general creditors of defunct MF Global, Inc. (other than those of its parent company MF Global Holdings Ltd.) will receive a final payment from the firm, giving them a total recovery of 95 percent of their approved claims, under a proposal made last week by the overseers of the liquidation of the firm and its parent company. Customers of MF Global previously received back US $6.7 billion (100 percent) of their allowed claims; secured, administrative and priority claimants received US $22.3 million (100 percent) of their allowed claims; and unsecured general creditors received back US $991.6 million (74 percent) of their unsecured claims. Under last week’s proposal – which is subject to court approval – MF Global will make a final, additional payment of approximately US $41 million to general creditors other than Holdings. MF Global and Holdings filed for bankruptcy protection on October 31, 2011. The CFTC previously filed an enforcement action – which is still pending – against John Corzine, CEO of MF Global, and Edith O’Brien, Assistant Treasurer of the firm, claiming that MF Global, Holdings and the two individuals failed to segregate and misused MF Global customer funds. (Click here for details of the CFTC enforcement action in the article “CFTC Files Long Awaited Enforcement Action Related to MF Global Collapse” in the June 27, 2013 edition of Between Bridges.) As part of the proposed transaction to fund the payment by MF Global to its general creditors, the firm would transfer certain of its current rights and obligations to Holdings.

My View: It is very good that the financial repercussions of the collapse of MF Global Inc. on customers and creditors appear likely to be mostly resolved by year-end. However, this resolution does not lessen the near-hysteria experienced by customers and creditors that followed in the days immediately following the demise of the firm –a demise apparently instigated by an apparently unanticipated regulatory capital treatment related to proprietary investments and the catastrophic breakdown of systems and controls. The collapse of MF Global in 2011 and Peregrine Financial Group less than one year later prompted the adoption of new rules by the Commodity Futures Trading Commission aimed at enhancing the protection of customer funds. Although industry participants (including me) can quibble on whether all these new rules were necessary or are entirely effective or whether, in fact, there are better alternatives, overall the new rules have likely achieved their objective of making customer funds safer, albeit at substantially increased costs to futures commission merchants.