The U.S. judge overseeing MF Global’s bankruptcy plans a closer review before deciding whether any of an estimated $190 million of insurance coverage for former company executives should instead go to customers.
Opponents of the plan to cover former executives, including at least four customer groups, believe the funds should not go to people they hold responsible for the collapse of the futures brokerage. The $190 million includes at least $120 million covering the period surrounding the company’s demise.
MF Global Holdings Ltd., which was run by former New Jersey governor and U.S. senator Jon Corzine, filed for bankruptcy protection on Oct. 31.
U.S. Bankruptcy Judge Martin Glenn at a Thursday hearing in Manhattan also authorized the hiring of several law and consulting firms to assist Louis Freeh, MF Global’s bankruptcy trustee and a former FBI director, and James Giddens, the bankruptcy trustee for the MF Global Inc broker-dealer unit.
The judge nonetheless expressed “concern about the proliferation of professionals” involved in the parent’s bankruptcy case.
The $190 million would be reserved to pay legal and other costs for onetime executives of the brokerage.
The insurance was provided by the company’s MFG Assurance Co. insurance unit, and had been prepaid for the period from May 2011 to May 2012, a lawyer for the insurer told Glenn.
It is unclear whether former CEO Corzine, whose $6.3 billion bet on European sovereign debt contributed to the collapse, is among those covered.
“We’re just looking for some answers” to questions including “who is seeking coverage, how much and who is making the distinctions,” Michael Moirano, a lawyer for one of the objectors, said at the hearing.
Glenn directed that more information from various parties be submitted to him by March 21.
“Many of the issues that the objectors have raised require greater scrutiny,” Glenn told Lorenzo Marinuzzi, a lawyer for Freeh, at the hearing. “Hopefully you can resolve those … that would permit payment of those amounts. If you can’t, you can’t.”
Corzine is also a former Goldman Sachs & Co. co-chief.
He and other former MF Global executives face a slew of litigation over their alleged role in the company’s downfall.
Thursday’s hearing came three days after Giddens said employees first used customer money to fund company operations on Oct. 26, five days before the bankruptcy.
The trustee said the employees evidently but mistakenly believed that the money would be replaced by the end of the day.
Giddens has estimated that $1.2 billion of customer money is missing, and investigators from the Commodity Futures Trading Commission, Department of Justice and Securities and Exchange Commission are trying to locate where any missing money went.
Jeffrey Margolin, a lawyer for Giddens, told the judge that an update on the status of the claims process should be ready in a few weeks, and that the trustee anticipates advising customers whether their claims are valid on a rolling basis.
The cases are In re: MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059; and In re: MF Global Inc in the same court, No. 11-02790.
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