Hearing Date: April 12, 2012 

 Time: 10:00 a.m. Eastern Time 

 Location: New York, New York 

 

Dan M. Berkovitz 

General Counsel 

Jonathan L. Marcus 

Deputy General Counsel 

Robert B. Wasserman 

Chief Counsel, Division of Clearing and Risk 

Martin B. White 

Assistant General Counsel 

Robert A. Schwartz 

Assistant General Counsel 

COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Plaza 

1155 21st Street N.W. 

Washington, DC 20581 

(202) 418-5000 

jmarcus@cftc.gov 

rwasserman@cftc.gov 

mwhite@cftc.gov 

rschwartz@cftc.gov 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

In re: 

MF GLOBAL Inc., 

Debtor. 

Case No. 11-2790 (MG) SIPA 

REPLY OF THE COMMODITY FUTURES TRADING COMMISSION 

IN FURTHER SUPPORT OF THE SIPA TRUSTEE’S MOTION TO APPROVE A FIRST 

INTERIM DISTRIBUTION FOR ALLOWED COMMODITY FUTURES CLAIMS

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The Commodity Futures Trading Commission (“Commission”) respectfully submits this 

reply in response to the statement of the Chapter 11 Trustee of MF Global Holdings, Ltd. (“MFG 

Holdings”) (Doc. # 1218) and the objection of Patrick O’Malley, M.D., Matthew Johnson, and 

Michael Dokupil (“Three Physicals Customers”) (Doc. # 1206) (“Objection”), pertaining to the 

SIPA Trustee’s motion to approve a first interim distribution for allowed commodity futures 

claims (Doc. #1086) (the “Motion”). Neither filing sets forth cause to prevent or delay the SIPA 

Trustee’s proposed return of customer property. Therefore, the Court should grant the Motion. 

I. The Chapter 11 Trustee’s Statement Of “Concerns” Is Improper. 

The Chapter 11 Trustee has filed a statement (“Statement of Concerns”) (Doc. # 1218), 

joined by the Chapter 11 Creditors’ Committee (“Joinder”) (Doc. # 1277), setting forth “a 

number of concerns” in connection with the proposed return of customer property and suggesting 

that the SIPA Trustee perform several tasks before the Court approves the distribution. The 

Chapter 11 Trustee, however, states no basis for conditioning the return of this customer property 

on the performance of such additional tasks, and the Commission objects to the dissipation of 

estate assets on any new requirements in this respect beyond those established by the Court’s 

existing orders. (See, e.g., Doc. # 423.) 

More fundamentally, neither the Statement of Concerns nor the Joinder gives any 

indication of what these parties’ interests are in the SIPA Trustee’s effort, by this Motion, to 

return the specified customer property to public commodity customers. While the Joinder asserts 

that MFG Holdings and other affiliated companies “are a claimant in the SIPA estate through 

subordinated debt, intercompany and equity claims, in addition to customer claims,”1

 neither the 

Chapter 11 Trustee nor the Creditors’ Committee has ever asserted any claim to the property 

 

1 See Joinder, Exhibit C at 6 (Doc. # 1277-3 at 7). 

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segregated at MFGI for the benefit of its public commodity customers, or to the other customer 

property addressed in the Motion. Nor could they. See 11 U.S.C. § 766(h) (reserving customer 

property for distribution to customers “in priority to all other claims” (with an exception not here 

relevant)); id. (providing that a “proprietary account” claim “may not be paid either in whole or 

in part, directly or indirectly, out of customer property unless all other customer net equity 

claims have been paid in full”); 17 C.F.R. §§ 1.3(y)(1)(vii) & (viii) (defining “proprietary 

account” to include the account of “a business affiliate that directly or indirectly controls” or “is 

under common control with” the FCM).2

 

Accordingly, the Chapter 11 Trustee and Creditors’ Committee have no arguable basis to 

interfere with commodity customers’ rights to the return of their property. The Court should 

give no weight to the views expressed in the Statement of Concerns and the Joinder, because 

they are unconnected to any articulated or legally cognizable interest in the property at issue, and 

should reject the Chapter 11 Trustee and Creditors’ Committee’s list of demands before granting 

the Motion. 

II. The Delivery Account Class Properly Includes Delivery Credits And Frozen 

Proceeds.

The Three Physicals Customers object to the inclusion of Delivery Credits and Frozen 

Proceeds as Physical Customer Property of the Delivery Class. These categories of property, as 

defined by the SIPA Trustee, include the cash proceeds of physical delivery contracts, whether or 

not those proceeds had yet been credited to the customer’s account upon entry of the order for 

 

2

 Any claims by the Chapter 11 Trustee or Creditors’ Committee to general MFGI estate assets in 

this case are also attenuated, at best, given that customer property includes, among other things, 

property that was unlawfully converted but is part of the estate, 11 U.S.C. § 761(10)(A)(viii), 

property that any law requires to be set aside or held for the benefit of a customer, 

id. § 761(10)(A)(ix), and customer property that was withdrawn but subsequently recovered by 

the SIPA Trustee, 17 C.F.R. § 190.08(a)(ii)(D). 

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relief. (Motion ¶¶ 24-25.) Under CFTC regulations, such cash is “specifically identifiable 

property” that may be contained in a “delivery account,” 17 C.F.R. §§ 190.01(kk)(3)-(5), 

190.05(a)(2), and is properly attributed to the Delivery Class. 

Section 190.05(a)(2) of the CFTC’s regulations provides, in relevant part, that a 

“[d]elivery account” contains “only the specifically identifiable property associated with delivery 

set forth in §§ 190.01(kk)(3), (4), and (5).” The Objection focuses exclusively on Section 

190.01(kk)(3), which includes physical commodities and documents of title within the definition 

of specifically identifiable property, but the Objection does not correctly apply 

Section 190.01(kk)(5), which provides that the “cash price tendered” for such property is also 

specifically identifiable property that may, under Section 190.05(a)(2), be held in a delivery 

account. According to the SIPA Trustee’s description, Delivery Credits and Frozen Proceeds 

meet that definition, so it is appropriate to attribute that property to the Delivery Class. 

The Three Physicals Customers correctly note that the Commission intends these 

regulations to prevent dilution of customer property held in delivery accounts. (Objection ¶ 8.) 

However, in promulgating the Part 190 regulations, the Commission specifically contemplated 

that some of that property would be in the form of cash. See Bankruptcy, 48 Fed. Reg. 8716, 

8731 (Mar. 1, 1983). Thus, alongside Section 190.01(kk)(3), which brings the physical property 

itself into the delivery account class, the Commission established subparagraphs (4) and (5) to 

provide that “the ‘price’ deposited for making or taking delivery” is “specifically identifiable 

property as well.” Id. As a result, “any property or cash which becomes captured by the estate 

incident to delivery” is “extractable under either §§ 190.01(kk)(3), (4), or (5).” Id. The 

proposed distribution, therefore, is a proper exercise of the Trustee’s powers under Sections 

190.01(kk) and 190.05(a)(2). 

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CONCLUSION 

For these additional reasons, the Court should grant the Motion. 

Respectfully submitted, 

 COMMODITY FUTURES TRADING COMMISSION 

By: /s/ Robert A. Schwartz 

Dan M. Berkovitz, General Counsel 

Jonathan L. Marcus, Deputy General Counsel 

Robert B. Wasserman, 

 Chief Counsel, Division of Clearing and Risk 

Martin B. White, Assistant General Counsel 

Robert A. Schwartz, Assistant General Counsel 

 

Commodity Futures Trading Commission 

Three Lafayette Plaza 

1155 21st Street N.W. 

Washington, DC 20581 

(202) 418-5000 

jmarcus@cftc.gov 

rwasserman@cftc.gov 

mwhite@cftc.gov 

rschwartz@cftc.gov 

Date: April 10, 2012 

 

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CERTIFICATE OF SERVICE 

 I hereby certify that on April 10, 2012, I caused the foregoing document to be served 

electronically via the Court’s CM/ECF system. 

/s/ Robert A. Schwartz 

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