The former customers of MF Global, Inc. (MFGI) can expect another round of distributions, resulting in a recovery for 4d customers of approximately 94–96 percent and for 30.7 customers of approximately 60–84 percent.
On July 3, 2013, at a joint hearing held before the US District Judge Victor Marrero and US Bankruptcy Judge Martin Glenn, a settlement between the MFGI Trustee and JPMorgan Chase Bank, NA (JPM) was approved, freeing up approximately $1 billion in recovery for former customers of the insolvent commodities firm. The relevant order was entered by the bankruptcy court on July 8.
The JPM settlement agreement was first announced in March 2013, allowing for the payment of cash and resolution of claims arising from the bank’s role as MFGI’s clearing house in executing asset transfers between MFGI and its customers. The settlement agreement provides for the influx of $100 million in new funds to the MFGI estate for distribution to customers and the return of over $29 million in proprietary MFGI funds. The order approving the settlement authorizes the MFGI Trustee to allocate (i) $100 million settlement payment from JPM to the 4d estate, (ii) $150 million of certain collateral to the 4d estate, and (iii) $50 million to the 30.7 estate. These funds were held by JPM to secure potential obligations under certain revolving credit facility agreement and clearance agreement between JPM and MFGI. As part of the settlement, JPM also agreed to waive their liens and set-off rights on over $417 million in MFGI proprietary funds previously returned to the MFGI estate, making those funds available for distribution to MFGI customers and general creditors. The July 3 approval of the JPM settlement allows MFGI’s former 4d customers to recover approximately 94 percent on their account value, with some estimates predicting that they will recover up to 96 percent on their account value.
Moreover, the July 3 approval of the JPM settlement satisfied the remaining conditions of the MFGI Trustee’s settlement with MF Global UK Limited (MFGUK), which was approved by the bankruptcy court on January 31, 2013, but remained contingent upon a final approval of the JPM settlement. The MFGUK settlement resolved the issues and disputes between the MFGI’s estate and MFGUK’s estate, allowing for (i) a payment of approximately $500 to $600 million paid over time to MFGI’s estate and (ii) additional substantial distributions to both 4d customers and 30.7 customers. The July 3 approval allows MFGI’s former 30.7 customers to recover approximately 60 percent on their account value upon immediate effectiveness of the MFGUK settlement, with some estimates predicting that they will recover between 84 percent (low estimate) and 91 percent (high estimate) on their account value after future MFGUK recoveries.
As a result of approval of the settlements with both JPM and MFGUK, the MFGI Trustee is authorized to return assets to the former customers and creditors, without a costly, protracted, and uncertain legal battle.
Approval of the settlements also came a week after the US Commodity Futures Trading Commission (i) filed a lawsuit against MFGI and its former CEO Jon Corzine on account of the alleged mishandling of over $1 billion in customer funds and (ii) announced a settlement with MFGI Trustee that may eventually provide a full restitution to MFGI customers.