Former MF Global Holdings Ltd. Chief Executive Jon Corzine and other company officials won court permission to tap as much as $30 million of insurance money to defend lawsuits over the futures brokerage’s collapse.
Tuesday’s decision by U.S. Bankruptcy Judge Martin Glenn in Manhattan is a defeat for former MF Global customers, who said the funds should be set aside for them, and not go to people they hold responsible for the company’s bankruptcy.
About $1.6 billion of customer money remains missing, the trustee for the MF Global Inc. brokerage has estimated.
“Without underestimating that hardships that many of (MF Global’s) commodity customers have faced, the individual insureds would suffer significant hardships if the policies were disabled,” Glenn wrote in a 32-page decision.
“A ‘soft cap’ of $30 million for defense costs of the individual insureds is appropriate at this time,” he added.
The decision lifts a so-called automatic stay from enforcing a variety of claims against a bankrupt estate.
Lawyers for James Giddens, who is the MF Global Inc. trustee, and Louis Freeh, the trustee for the New York-based parent company, did not immediately respond to requests for comment.
Andrew Entwistle and John Witmeyer, who respectively represent two customer groups, also did not immediately respond to requests for comment.
Glenn said his decision does not address whether the insurance proceeds actually belong to former customers. He also said commodity customers of the brokerage unit are legally entitled to object to the insurers’ payment of defense costs.
About $375 million of insurance proceeds are available, and officers have submitted more than $8 million of claims, Freeh’s lawyer Lorenzo Marinuzzi said at an April 2 hearing.
Insurance funds come from policies issued by MFG Assurance Co., which is MF Global’s insurance unit, and policies issued by U.S. Specialty Insurance Co.
MF Global filed for Chapter 11 amid a liquidity crunch prompted by investor, client and credit-rating agency worries over its $6.3 billion bet on European sovereign debt.
Current and former MF Global executives and directors face more than 20 lawsuits over the collapse and the whereabouts of the missing money.
Corzine, who had previously served as a governor and senator from New Jersey, testified before the U.S. Congress in December that he did not know where the missing money is.
The cases are In re: MF Global Holdings Ltd. et al, 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.