Friday Court Feed

#PFGBest Customers

Are you a customer of PFGBest? The CCC is working with regulators and monitoring the court on behalf of PFG customers. At this stage, we are advising customers to gather their statements and prepare for a claims or account transfer process.

Stay tuned to our website for more information.

Quick update on today's developments from the bankruptcy court (culled from @JamesKoutoulas tweets).

  • Court starting off with Kobak, counsel for SIPA tstee giving status report. Reducing costs by moving MF into cheaper offices
  • With respect to transfers, all have been made from 4d funds from customer funds designated for US exchanges
  • Judge "not particularly sympathetic" to objectors of third transfer motion
  • Kobak: 3rd transfer will include almost all accounts with US funds except those with less than 100$ in them
  • Kobak- today's estimate is customers get 72% of account value. Cme agrees with that number. Holding back 1B for contingencies
  • Tstee does not have access to foreign funds yet. In dialogue with foreign admiNs. Bulk of foreign property is in UK. ~878M held in 30.7accts
  • MF Trustee says they have found a likely buyer for the securities accounts. #MFGLOBAL won't say who tho...still in works.
  • Tstee now recovered 200m for general mfgi estate. Up from 26m at last hearing.
  • Tstee: if there is a shortfall in customer seg funds, customers will be paid shortfall from general estate under sipa and commod regs
  • Tstee not able to confirm shortfall of less than 1.2B. Disclosures hamstrung due to pending criminal investigations by federal agencies
  • Tstee now saying denominator for seg funds may be up to 5.8-5.9b.
  • Judge- "have your investigations show suspicious transfers of customer funds?" tstee- yes
  • Tstee- following meet and confer with customers' counsel (including CCC), claim form can now be filled out online
  • Tstee will be sending customers oct month end stmts as well as updated, reconciled stmts as per CCC demand. May have some errors
  • Judge appreciates tstee efforts. Tstee omnibus reply addresses vast majority of objections to transfer process.
  • Judge says customers frustrated at slow response time from tstee. Recommends process 2acknowledge email rcpt. CCC will help tstee do this
  • Now discussing third transfer motion
  • Tstee "can make substantial distribution to true up everyone to high number" ~72%. After want to "stop look listen" before further transfers
  • 72% does not include foreign accounts or those with debit balances but "essentially all other accounts"
  • Some accounts will be trued up within a few days. Some accounts will take 2-4 weeks
  • Tstee: 150m in claims of affiliated not included in this process
  • 20m due to Cme adjustments in valuations. 120m in physicals handled by other clams process.
  • Tstee: objection from creditors cmtee from holding co does not have standing. "wrongheaded" and contrary 2law which favors customer property
  • Everyone is reserving rights to more money. That's what claims process is for
  • Now up physicals
  • Argmts from physical customers that they want to be separate class and get 100% back
  • Judge "no one waiving or releasing any rights by agreeing with claims process. Allows ppl immediate access to funds they couldnt get otherwi
  • Judge says exhibit A categorizing objections and responses very useful
  • Addressing 4d (US) vs 30.7 accounts now. About 10 lawyers stood up immediately to get inline to talk
  • annoyed at MFG UK atty from Weil Gotshal. Paraphrase- sit down
  • Aside from me: easy to hate on SIPA tstee, but they've come a long way and have made real progress in their argmts 4 customers this wk
  • CFTC lawyer up now
  • CFTC: accounts must be titled for specific types of segregation
  • @cftc: 190.08c1 property of specific account class must be allocated to that class or type they are traceable to. This shouldnt be debated.
  • Kobak: we have 4d funds, don't have 30.7 yet, but confident we will soon
  • Rep from tstee: "shortfall does not necessarily equal commingling"
  • RRep from tstee: 30.7 customers not entitled to 4d statutorily. Reserving $ for the, from 4d would reduce 4d receipts to 60% for no benefit
  • Judge Glenn overrules objection from 30.7 customers. I agree with judge.
  • Now Martin bienenstock atty for creditors cmtee up re: objection on transfer. Judge: tell me why u have standing
  • Marty cites a couple cases. Judge says he understands Freeh has standing, but Freeh is rep for estate NOT cmtee. "y should I be hearing u?"
  • Judge "you don't think Freeh can protect interests of creditors in holdco?" Marty- of course I think he can.
  • Marty struggling to convince judge. Pulling out 3 more cases.
  • Marty- if SIPA distributes too much to MFGI customers, damages creditors. Judge says law does not give him right to talk in this case.
  • Marty argues he can file some motion to give him right to judge. Judge "go ahead". If u want to talk come back this afternoon [4holdco] case
  • Marty not giving up. Going on with reg 190 argument.
  • Really reaching. Citing motion that was vacated as precedent. Saying can still use since vacated for diff reason
  • Marty disagrees with def of customer property. Doesn't like 72% #. Judge "haven't convinced me of standing yet now trying to argue" boom
  • Judge really getting rankled. Asks Kobak if ch 11 debtor still reserving rights through transfer. Kobak disputes if cmtee has rights
  • But if Ch 11 cmtee has any rights, they are reserved. Judge ire grows. "you not gonna do SIPA tstee job. I am denying 2004 discovery 2cmtee"
  • Judge: how much time does cmtee want to file reply? Marty: 2 weeks. Judge: fine
  • Judge didn't realize Marty wanted associates working thru Xmas. Marty embarrassed back pedals to 30 days.
  • Judge overruled holding company creditor cmtees objection requesting clawback provision. BOOM. Marty finally sits down
  • Freeh's lawyer gets up now
  • Freeh going to issue a bunch of new info at 2pm hearing
  • Ch 11 tstee and SIPA tstee working on data sharing between cases
  • Talking physicals now. #CCC co counsel trace Schmeltz getting up now to discuss proposal to make whole clients with physicals thatcantbsplit
  • Schmeltz proposes that physicals distributed to new FCM and clients can put up 28% of cash to hold full gold bar
  • Tstee said this proposal would be in order, but Schmeltz says its not in order
  • Judge calling Schmeltz up with Trager from tstee. Wants Schmeltz to meet and confer w/ tstee to come up with solution since cantsplitgoldbar
  • Tstee and Schmeltz did a meet and confer on dec 2 via phone. Tstee gonna implement as many mechanisms as possible from Schmeltz and others
  • However due to uniqueness of each claim, physical holders require very personalized mechanisms. Will work case by case to address all physCs
  • Judge wants tstee to work with Schmeltz to prepare joint order for Jan 19 with mechanisms. This will NOT hold up 3rd bulk xfer
  • Schmeltz mostly agrees. Just wants one sentence in order so that this can happen now rather than JAn. judge says we can work out after court
  • Judge Glenn grants bulk transfer motion. Virtually all US customers to receive ~72% of their $ back this month! Now fight for 28 continues
  • Kobak thanks #CCC for kind words but says reserve of less than 1B not prudent even with CME guaranty
  • Judge overrules objections to bulk transfers by physical holders since Schmeltz and tstee will work out one sentence in order to fix
  • Judge: court has not yet resolved issue of priority/timing over MFGI creditors

#MFGlobal Customers

Are you a customer of MF Global? The CCC formally represents more than 200 clients in the bankruptcy process of MF Global on a pro bono basis, and informally represents thousands more in the public domain.

Get the latest news on #MFGlboal.

About John Roe 91 Articles
Co-Founder of the CCC and head of BTR Trading and Roe Capital Management.

49 Comments

  1. Watching the Senate hearing and I’m feeling a little slighted. The witnesses are all farmers what about speculators are we 2nd class citizens? I quess speculators are nit sympathetic operators.

  2. Excerpt from today’s Bloomberg:
    “MF Global Inc. will distribute the remaining 28 percent customers claim they’re owed by taking “traceable” assets and putting them in pools for different types of accounts, said James Giddens.

    Liquidation Regulations
    Separately, the SIPC and the Commodities Futures Trading Commission filed court papers about regulations governing the liquidation.

    Commodities customers “are granted the highest priority against the bankrupt broker’s estate,” and if customer property isn’t sufficient to pay all claims of public customers, “other estate property will be used to satisfy those claims,” lawyers for the CFTC wrote.”

    Hopefully, the judge will intepret the reg the same way. Your thoughts, James?

    • This was posted somewhere below but really belongs here: “Trustees filing today (Docket #726) on “Legal Principles” he will use in managing claims seems pretty good to me. The CFTC filing (Docket #724) on the same subject seems even better. Will let the lawyers parse them and see what we can expect. But both seem to put forward an agressive position on getting other assets to make us whole.”
      Have not read SIPC filing.

  3. CME just drew a line in the sand.

    I guess we might have a few issues to test with the CME..

    Reuters
    10:58 a.m. CST, December 12, 2011

    CME Group Chief Operating Officer Bryan Durkin said on Monday that the exchange will not guarantee the remaining one third of funds missing from customer accounts at bankrupt brokerage MF Global.

    Such a move would be “unwise” and the CME has a “fiduciary responsibility” to its shareholders, he said at a National Grain and Feed Association conference on Monday.

        • If you could organize a massive general boycott of all CME products they might cough up some money. Otherwise the courts will rule in their favor and we’ll be back dealing with the trustee

          • Trustees filing today (Docket #726) on “Legal Principles” he will use in managing claims seems pretty good to me. The CFTC filing (Docket #724) on the same subject seems even better. Will let the lawyers parse them and see what we can expect. But both seem to put forward an agressive position on getting other assets to make us whole.

          • My note to glenn cc trustee: In a talk with the Trustee today I was told that he was doing what he could to work in partnership with the CME. Although I support a working cordiality between parities involved in problem solving; I am NOT CONVINCED that the Trustee understands the CME was the primary regulator and regulatory-auditor of MF Global (DSRO) and thereby might be liable should negligence be established by the court due to lack of oversight. In such case, It would Trustees responsibility to take a adversarial role in protecting the interests of the estate.

  4. I’ve now read the new motion for 3rd distribution.

    It DOES NOT SAY who receives money! The trustee could comply with this motion while leaving out anyone he chooses. It just says he is to distribute a certain amount of money.

    • p11… What this has amounted to is any win was to MF Global’s benefit, while the losses belonged to clients. If the trustee is even correct and without going after other NY bankers as Martin Glenn did in Princeton Economics, a 70% recovery means they still stole 30% of all deposits when their bad trade was netted out. Nobody goes to jail, as was the case in Princeton Economics since Republic & HSBC agreed to give back what they stole provided no director went to jail. SO this is what Martin Glenn argued for in addition to indefinite detention with all constitutional rights suspended until you die. We just cannot expect anything honest or upfront from Judge Glenn based upon his track record. This is the guy who argued that since corporations have no rights to remain silent, then nobody who works for a corporation does either. Investors should cite my case before Judge Glenn, use his own words, and then move to imprison all corporate officers of MF Global until they die. He said that was constitutional since corporate officers have no rights.

      • Are you an aggrieved MF Global customer? If yes, no problem posting here. Otherwise not sure this is right forum for you. Your website crashed my computer, simalarly to what your incoherent diatribe on Judge Glenn did to my mind.
        From day one in court, I have observed Judge Glenn to be forcefully on the side of aggrieved MF Global customers. By continually pressuring the Trustee to do more, overuling delaying objections, and dismissing frivoulous arguments, he has really assisted CCC in getting us to where we are – 72% distribution. Not sure I want to stop and analyze his legal record at this point. Would simply prefer to press on for 100% restitution.

    • James it appears from some comments that there is a formula that will be used to determine distributions based on 10/31 balance plus or minus changes before transfers can you specify?

      • They are in the process of reconciling account values to reconcile amounts already transferred as well as gains/losses incurred post 10/31. The goal is that the 72% will be calculated off the most accurate account value as possible.

  5. I had a talk with Gerald Celente and we agreed the CME has been getting a pass on this issue by the “forth estate”. It is well within the CME to backstop MF Global customers based on the public representations of Terrance Duffy and the CME at large. There is also a question as to the effectiveness (lack) of the CME as DSRO (the primary regulator). The Financial Times seems to be the first news agency picking up on this issue over the weekend.

    In terms of leadership, The CME also has a facility to draw on 8B from member firms as documented on their website. They need internal and external leadership to see this thing through and they define industry-leadership as the primary mission of their organisation. IN a heated discussion I had with Brian Durkin (COO) of the CME he did not understand that end users of MF Global were his customers and he stated to me that his “customers were made whole in total.” I found his statement to be outrageous, arrogantly short-sighted to the CME’s corporate interest and an insult to MF Global customers.

    The Trustee also indicated to me that they have a cordial relationship with the CME. I am in favor of working in partnership to solve problems. However, I pointed out that the Trustee may have to seek recourse from the CME for failure as DSRO.

    It would be much better for the CME to step and make customers whole. I have to question why a $1.2+ billion problem cannot be solved. Perhaps its the whole structure of the derivatives market in question.

    I will not tell you what to do. I am taking any funds recovered away from the financial industry. I will not provide the CME with one dollar of revenue going forward.

      • The CME is a DSRO and they have a duty as such to audit and regulate MEMBER firms such as MF Global. As a mutual company those member firms would have been the stockholders. The relationship between market and end customer would have been clearer. The CME cannot be a regulator and a market and a public company at the same time.
        With MF Global; The fox (CME) was allowed to guardi the hen house and this is not acceptable. If MF Global customers are not made whole, focus needs to move to the CME. Market needs can be met with a utility function, not with an entity that will not stand by its customers.

  6. I don’t see the motion yet on the trustee web site, but I do see Giddens’ press release, which says “U.S. Bankruptcy Judge Martin Glenn today approved the Trustee’s request for approval of a bulk transfer and distribution to former MF Global Inc. retail commodities customers with US futures positions, which should result in those account holders receiving approximately 72% of their property.”

    Note that he says “customers WITH US futures positions”.

    Does that mean that this motion excludes people who were all in cash? (like me)

    If so, that’s the third time the trustee has created a motion which carves out a specific subset of the customers. This was nutso the first time he did it, and the second time, so you can imagine what I think about the third time!

    This was supposed to be the “true up” round to get everyone on a level playing field.

    • Listening in court, I believe it is a true up of everything (i.e. physicals, T-bills, cash, foreign currencies…) EXCEPT the future positions on foreign exchanges. The collateral for positions on foreign exchanges resides principally in MF Global’s overseas subsiduaries, and the US Trustee cannot yet access this money.
      He repeated that currency is not the determining factor. Some US exchange positions are backed by cash in foreign currencies, and all that is covered. Conversely, some positions on foreign exchanges, have collateral in US$ at overseas subs – that is not covered.

        • Seems to me that Turstees press releases (presumably written by PR firm that sends them) are often either sloppy or deliberately opaque on a number of issues. This is in contrast to most of his filings (e.g. Omnibus Reply to Objections – #669) which seem to be very well written (presumably by the lawyers).

          • The distinction he was trying to make is between accounts where the property was held in the US versus where cash was held overseas. This will cover all customers of the MF Global, Inc. entity for cash/physicals/futures/options/etc/etc was held in the US.

    • Here is a letter from the CME describing the 3rd transfer.

      December 9, 2011

      To Our CME Group Trading Community,

      Today the Bankruptcy Court approved the MF Global Trustee’s motion to make a third interim distribution of MF Global customer funds. This distribution, which is expected to begin next week, enables the Trustee to distribute 72 percent of customer funds previously frozen, including trapped account balances, dishonored checks, and distributions with respect to warehouse receipts and other customer property at MF Global.

      While the bankruptcy process does not move as fast as any of us would like, it is important to note that this process stands in stark contrast to the situation of MF Global customers outside the U.S., where many foreign receivers have not paid out any cash since the bankruptcy. Since this process began, CME Group is the only exchange to have offered any guarantee to accelerate the Trustee’s distributions, and we are gratified that our $550 million guarantee has helped return more property, more quickly to all MF Global customers.

      CME Group has worked diligently with the Trustee to speed customer access to trading accounts and transfer customer positions. Our priority has been and continues to be to assist customers and minimize market disruptions caused by MF Global’s unprecedented failure.

  7. What about the conservative principals that call for limited gov’t , less regulation and no bailouts? I quess they all sound good until a self regulated private company steals “:your” money.

    My guess is most of the customers caught up in this MFG disaster are the same people that howled at the GM bailout, yet are now all to happy to accept their own gov’t bailout.

    • Obviously you have no idea what is going on here. There is no government bailout. How would you feel if you woke up one morning and went to your bank and they told you “your account has been frozen and we don’t know when or if you will ever get it back.” because the bank pres./ceo found a loophole that causes the FDIC not to cover the losses. (not an exact analogy but one the general public can understand) Regulations are already in place. Its about the integrity of the players and the fact that when you are told that your funds are segregated and safe, you expect that to be true. The problem always comes when people try to find every loophole in the game instead of doing the right thing. As a result , the customers have to go through a bankruptcy circus to get back their funds back when they should have never been in it in the first place (see Refco bankruptcy proceedings)

      • My post was directed to the Forbes story listed below suggesting the Fed bail out MFG customers. Yes I did wake up on Nov 1st to find out that my funds were frozen (I might add a lot of funds).

        Forbes and a lot of big mouthed conservatives are screaming daily how we need less regulation and more free markets. Cut gov’t and let the free markets do their thing.

        We’ll here we are MFG was self regulated private corp that
        clearly was vastly under regulated and was allowed to self report daily seg requirements without anyone even bothering to read the reports.

        • good points all, but I think ggoolsby hit the nail on the head. The problem is in Washington – either write the law without loopholes/exceptions or don’t bother. And the only thing laughable here is the thoughts by the public that the gov’t agencies that are “overseeing” are actually doing their job. Remember, JC supposedly talked the Fed out of tightening the rule that allowed for the use of cust $$ by the broker. The act (as I read it) that governs this does allow for them to use our $$. If that is correct then it should be obvious to all that our elected officials don’t care about the little guy. If they did they could have at least put it in huge bold print that the company we hold accounts with was allowed to gamble with our $$. If the legislation doesn’t correct the problem(s) it is supposed to then it was a complete waste of time, in my opinion, for it to be drafted and debated, voted on, and signed by the prez. Kinda like all that time the super committee spent trying to come up with budget cuts – yeah, like they really want to.

          The laws we need seem to be in place, they just need a bit of tweaking. And they def need to be enforced.

    • Sammy we are not asking for a bailout.We only want enforcement of the law that puts segregated funds ahead of all other claimants.There is plenty of money or assests to cover all that was taken from us. However the govt. Has liability to us as well.It’s established law that warning labels are a necessity. Their are warning labels on mattresses ect. Ect. Ect. But not on letting us know our money was being used daily. I have been trading for 40 years and I didn’t know.More than 9 out of 10 didn’t know.A law not known by almost everyone isn’t doing. It’s job. As it worked out our money was used to invest in securities and perhaps it was lost in securities so why are we not covered by SIPC.

    • Asking the American tax payers to bail out a bunch of millionaires that were ripped off by a bunch of other millionaires is laughable. Forbes of all people should be ashamed.

      • With all due respect, as mentioned on last week’s PBS and NBR interviews, the thousdands of farmers who rely on the futures market and need to buy seed NOW for the upcoming season – and now can’t – would beg to disagree … not to mention the millionaire comment.

        And it wouldn’t be a bailout … rather a temporary short-term loan to the Trustee with full repayment when the Feds rightfully claw back the theft.

        If our government and regulators CAN’T protect farmers and customers in time of outright wrongdoing, then all is truly lost in terms of our protective freedom.

        This will undoubtedly be a topic for next week’s hearings, as it should.

        • Commodity speculators hiding behind farmers who can’t buy seed as an excuse for tax payer bailouts is silly.

          Farmers have a deep and well documented history of gov’t assistance. There is a vast system of Farm Bureau’s across America that provide loans and assistance to farmers daily. I would not lose any sleep over farmers not getting their fare share of gov’t assistance because of MFG

          it’s most likely the case that our 40% is gone forever. The trustee can’t claw back funds from the UK any easier then the FED can. So in the end your asking the American tax payers to bail us out.

          No one can be held accountable for the criminal acts of another person.

          • The Federal Reserve is not taxpayer funded. When they make loans at the discount window it is not with taxpayer dollars. When they conduct overnight repo operations or buy mortgage paper in the open market it is not with taxpayer dollars collected by the IRS.

            While I disagree with much of the “money printing”, inflationary policies of the Fed over the past many years, the Bernank is correct when he says that it is not funded by taxpayers.

            I would argue that it is a perfectly legitimate role of a nation’s central bank to backstop the citizen customer who is the victim of theft. The central bank should then inject itself into the bankruptcy proceeding and assert their own super-priority over the assets of the failed organization. Either way, it would not be a “taxpayer bailout”, it would be the protection and return of stolen property by a non-taxpayer funded regulator.

  8. Im a MFG customer and happened to be on the same commuter flight as Mr. Koutoulas from DC to new york last night. There was a woman with two small children struggling to get down the jetway and he immediately grabbed her big stroller and bag and carried it down the stairs for her while several onlookers asked how he was going to carry his own luggage. He simply said “dont worry I got it” and effortlessly handled all of it much like he has the mf global night mare. The poor guy was already asleep when I got on the plane so I didnt get to meet him, but he sure seems like a wonderful young man.

    Congratulations on his big win in court today on all of our behalves to get us 72% of our money back. We are going to actually have a Christmas this year because of all his fearless hardwork. Thank you from the bottom of my heart, James.

  9. One tweet from James K. not included:
    “72% true up will be based on liquidating value of accounts after transfers occured,”

    When someone has a chance, can we get a clarification on what this statement means?

    72% is a great result – better than the 12% I have now. Great job to all at the CCC.

  10. I am holding substantial percentage of my account in bad check. I will include these in my claim .If a bulk distribution is made will it include these check amounts.Does the trustee know who is holding bad checks without the claim forms?Will they make bulk distribution before looking at claim forms?

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