ny-1021270 

MORRISON & FOERSTER LLP 

1290 Avenue of the Americas 

New York, New York 10104 

Telephone: (212) 468-8000 

Facsimile: (212) 468-7900 

Brett H. Miller 

Lorenzo Marinuzzi 

Melissa A. Hager 

John A. Pintarelli 

Counsel for Louis J. Freeh, Chapter 11 Trustee 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

 ) 

In re ) 

 ) 

MF GLOBAL Inc. ) Case No. 11-2790 (MG) SIPA 

 ) 

 ) 

 Debtor. ) 

 ) 

CHAPTER 11 TRUSTEE’S STATEMENT REGARDING MOTION OF 

JAMES W. GIDDENS, SIPA TRUSTEE FOR LIQUIDATION OF 

MF GLOBAL INC., TO APPROVE FIRST INTERIM DISTRIBUTION 

FOR ALLOWED COMMODITY FUTURES CLAIMS

 Louis J. Freeh (the “Chapter 11 Trustee”), the chapter 11 trustee of MF Global Holdings 

Ltd. et al. (“Holdings Ltd.”), by and through his undersigned counsel, submits this response (the 

“Statement”) to the Motion of James W. Giddens, SIPA Trustee (the “SIPA Trustee”) For 

Liquidation Of MF Global, Inc. (“MFGI”), To Approve First Interim Distribution For Allowed 

Commodity Futures Claim [Docket No. 1086] (the “Distribution Motion”)1

. In support of his 

Statement, the Chapter 11 Trustee respectfully represents as follows: 

PRELIMINARY STATEMENT

1. The Chapter 11 Trustee fully supports the SIPA Trustee’s efforts to distribute 

customer property as quickly as possible. However, the Distribution Motion raises a number of 

 

1

 Defined terms used herein but not specifically defined herein, shall have the meaning ascribed to them in the 

Distribution Motion. 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 1 of 8
ny-1021270 2

concerns for the Chapter 11 Trustee. First, the Distribution Motion does not provide an 

explanation of how such relief impacts each Property Pool (as defined herein below). For 

example, the SIPA Trustee fails to disclose even the most basic facts, such as the number and 

amount of the non-duplicative customer claims filed by Property Pool (the “Filed Claims”), the 

dollar amount of claims allowed as determined (subject to objection by customers) by Property 

Pool (the “Determined Claims”), the dollar amount of final, allowed claims by Property Pool (the 

“Allowed Claims”) and the exact distribution percentage for Allowed Claims. 

2. Second, there appears to be a growing disconnect between the SIPA Trustee’s 

position on the amount of alleged “missing” customer property and what the facts support. The 

CME recently stated that the “missing” funds total $500 million to $600 million – still a 

substantial number, but significantly less than $1.6 billion. It would be beneficial to the former 

customers of MFGI, the creditors of Holdings Ltd. and MFGI and the public as a whole for the 

SIPA Trustee to explain the difference and provide additional information and facts to support 

his calculation. 

3. Finally, the Chapter 11 Trustee believes it is appropriate for the SIPA Trustee to 

provide updated information with respect to securities customer property (the “Securities 

Customer Property”). Affiliate customers have yet to receive any distributions on account of 

their claims against Securities Customer Property. The Chapter 11 Trustee fears that the lack of 

information with respect to a true-up distribution for affiliate customers portends the SIPA 

Trustee’s decision to focus his attention on non-affiliate, or public, futures customers, to the 

exclusion of affiliate customers.2

 Additional disclosure on this issue is warranted. 

 

2 See First Sixty Day Report, Appendix A, p. 5 (“The Trustee oversees the Securities Investor Protection Act (SIPA) 

liquidation of MF Global Inc., and his goal is to fulfill the SIPA mandate to satisfy public customer claims in an 

orderly and fair process.”). 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 2 of 8
ny-1021270 3

4. The Chapter 11 Trustee oversees entities that are both customers and creditors of 

MFGI. However, the interests of all customers and creditors of MFGI are served by having 

updated information on the recovery of assets, the reconciliation of claims and the overall status 

of the liquidation of MFGI and understanding the potential impact of this information on their 

interests. 

FACTUAL BACKGROUND

5. On November 2, 2011, November 17, 2011 and December 12, 2011, the 

Bankruptcy Court entered orders (collectively, the “Bulk Transfer Orders”) approving the bulk 

transfer of open commodity contracts, cash, cash equivalents and additional amounts of 

segregated funds (the “Bulk Transfers”)3 to new futures commission merchants (“FCMs”) such 

that each customer would have received approximately 72% of the net liquidating value of each 

reconciled domestic account. The SIPA Trustee was also authorized to distribute, via bulk transfer, 

non-liquid assets, such as warehouse receipts, precious metal certificates, shipping certificates, and 

other certificates of title for commodities held by MFGI for its customers (“Physical Customer 

Property”) in the same 72% pro rata share.

6. On November 22, 2011, the Bankruptcy Court entered an order [Docket No. 423] 

(the “Customer Claim Order”) requiring the SIPA Trustee to file (a) interim reports pursuant to 

15 U.S.C. § 78lll(2) every six months and (b) status reports every sixty days from entry of the 

order (each, a “Sixty Day Report”). 

7. On December 12, 2011, the Bankruptcy Court entered an order authorizing the 

SIPA Trustee to sell, transfer and assign substantially all of MFGI’s non-affiliate securities customer 

accounts (the “Sale Order”) to Perrin, Holden & Davenport Capital Corp. (the “Purchaser”). 

 

3

 The SIPA Trustee has not disclosed whether any customer has received more than their “net equity” as a result of 

customer property received through the First Bulk Transfer, the Second Bulk Transfer and the Third Bulk Transfer. 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 3 of 8
ny-1021270 4

8. On January 12, 2012, the SIPA Trustee filed his Sixty Day Report on Status of 

Liquidation [Docket No. 835] (the “First Sixty Day Report”). 

9. On February 6, 2012, the SIPA Trustee filed his Preliminary Report on Status of 

His Investigation and Interim Status Report on Claims Process and Account Transfers [Docket 

No. 896] (the “Investigation Report”). 

10. On March 2, 2012, the SIPA Trustee filed his Periodic Claims Processing Report 

[Docket No. 977] (the “Claims Report”). 

STATEMENT

11. By the Distribution Motion, the SIPA Trustee has proposed to make an initial 

distribution (the “First Interim Distribution”) of the following customer property to holders of 

Allowed Claims:4

a. Up to $600 million of customer property that MFGI was required to 

segregate under Section 4d of the Commodity Exchange Act (the “4d 

Segregated Funds”); 

b. Approximately $50 million in customer property held in foreign futures 

accounts where MFGI was required to maintain secured accounts under 

Rule 30.7 (the “30.7 Secured Funds”); and 

c. Approximately $35 million of customer property to claimants with allowed 

claims for property within a domestic delivery class (“Delivery Funds,” and 

together with 4d Segregated Funds, 30.7 Secured Funds and Securities 

Customer Property, the “Property Pools”). 

A. Disclosure of Additional Information Regarding the Property Pools 

12. The Chapter 11 Trustee generally supports the swift and streamlined 

distribution of customer property to the customers, but believes that the SIPA Trustee 

should make additional disclosures of the facts and assumptions relied upon by him in 

formulating the proposed distribution. Here, the Distribution Motion is devoid of sufficient 

 

4

 The SIPA Trustee has not proposed to make a distribution of Securities Customer Property. 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 4 of 8
ny-1021270 5

information necessary to determine it if is appropriate for the SIPA Trustee to make a 

distribution at this time. 

13. The First Sixty Day Report, which was issued in January 2012, contained 

information relevant to the Distribution Motion, including (for each Property Pool) the estimated 

claims, assets marshaled/recovered, location of unrecovered assets, assets distributed through 

Bulk Transfers, assets remaining under SIPA Trustee’s control and approximate distribution 

percentage. Subsequent reports issued by the SIPA Trustee, however, including the 

Investigation Report and the Claims Report, do not provide a comparable level of detail with 

respect to the Property Pools that was provided in the First Sixty Day Report. Such detailed 

information would be of interest to the Bankruptcy Court, the former customers of MFGI, the 

creditors of Holdings Ltd. and MFGI and to the public. 

B. Reconciliation of Apparent Discrepancy With Respect to the Calculation of 

Missing Customer Funds 

14. The lack of clear information relevant to the consideration of the Distribution 

Motion has led to the disparity between the SIPA Trustee’s statements regarding customer assets 

and other information that is in the public domain. Full transparency regarding the scope and 

status of the MFGI liquidation is appropriate. 

15. For example, the SIPA Trustee has stated that $1.6 billion in customer assets are 

allegedly “missing.” In contrast, the CME puts the total of “missing” customer funds at $500 

million to $600 million, which is 62.5% less than $1.6 billion. The SIPA Trustee is best placed 

to provide information to clear up this significant discrepancy, and appears to be in the best 

position to explain whether the $1.6 billion in customer assets is actually “missing,” or if such 

assets or some portion thereof have been identified and located but remain outside his control. 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 5 of 8
ny-1021270 6

16. Similarly, the First Sixty Day Report states that the SIPA Trustee recovered 

$63.55 million in 30.7 Secured Funds. According to the Distribution Motion, the SIPA Trustee 

expects to make a distribution of $50 million and maintain a reserve of approximately $40 

million in 30.7 Secured Funds to address “potential disputes.” The logical inference is that the 

SIPA Trustee has recovered an additional $26.45 million in 30.7 Secured Funds. Yet, the 

Distribution Motion lacks any details to explain the apparent augmentation of 30.7 Secured 

Funds. Such additional information would help to clarify the difference between what was 

reported in January and the amount of 30.7 Secured Funds apparently currently in the possession 

of the SIPA Trustee. 

C. Reconciling Claims With Respect to Securities Customer Property 

17. The Chapter 11 Trustee is also concerned about the apparent lack of progress with 

respect to Securities Customer Property. The SIPA Trustee has neither allowed nor made any 

distributions to affiliate-customers. The Chapter 11 Trustee understands that this analysis is time 

consuming, particularly given the size and complexity of this case. However, the Chapter 11 

Trustee is concerned about the SIPA Trustee’s stated position that his duty is to return customer 

property to public customers. The Chapter 11 Trustee believes that the law makes no distinction 

between the duties the SIPA Trustee owes to affiliate and non-affiliate securities customers, 

except with respect to eligibility for a SIPC advance. 15 U.S.C. § 78lll(2), 15 U.S.C. §78fff-a(4).

5

 

Regardless of any perceived disagreement concerning the SIPA Trustee’s duties, it is appropriate 

for the SIPA Trustee to provide updated information with respect to Securities Customer 

Property and the status of reconciling claims, including affiliate-customer claims. 

 

5

 In fact, the SIPA Trustee also owes a duty to creditors of MFGI. See Kusch v. Mishkin (In re Adler Clearing 

Corp.), (95-08203, Adv. Proc. No. 95-9248A), 1998 Bank. LEXIS 1076, at *49-50 (Bankr. SDNY Aug. 24, 1998) 

aff'd 208 F.3d 202 (2d. Cir. 2000). 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 6 of 8
ny-1021270 7

18. At this stage in the proceeding where the SIPA Trustee is seeking to make an 

interim distribution, it is critical for the SIPA Trustee to be more transparent about the general 

status of the case, his progress in collecting the assets of the estate, the status of the 

reconciliation of claims against the estate and other relevant information uncovered by his 

investigation. 

19. Unambiguous disclosures by the SIPA Trustee regarding each distinct Property 

Pool would be an integral step in the direction of greater transparency. The information that 

would provide greater transparency includes: (a) revisions to the SIPA Trustee’s initial 

projections for assets of, and claims against, each distinct Property Pool; (b) the total amount of 

Filed Claims by Property Pool; (c) a comparison of Filed Claims against the Determined Claims 

for each distinct Property Pool (including the potential impact on estimated distributions), (d) a 

comparison of Filed Claims against the Allowed Claims for each distinct Property Pool 

(including the impact on estimated distributions), and (e) the progress that the SIPA Trustee has 

made in realizing estate assets (by distinct Property Pool including general estate assets). 

[Remainder of Page Intentionally Left Blank] 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 7 of 8
ny-1021270 8

CONCLUSION

20. The Chapter 11 Trustee respectfully requests that the Bankruptcy Court, in 

conjunction with any approval of the Distribution Motion, require the SIPA Trustee to provide 

an update to the First Sixty Day Report, which update shall include: (a) the information 

requested herein for the benefit of customers and creditors and (b) such additional information as 

the Bankruptcy Court deems appropriate. In addition, the Chapter 11 Trustee reserves all rights 

to seek additional relief as he deems appropriate. 

Dated: New York, New York 

 March 30, 2012 

MORRISON & FOERSTER LLP 

By: /s/ Brett H. Miller 

Brett H. Miller 

Lorenzo Marinuzzi 

 Melissa A. Hager 

John A. Pintarelli 

1290 Avenue of the Americas 

New York, NY 10104-0050 

Tel.: 212.468.8000 

Fax: 212.468.7900 

bmiller@mofo.com 

lmarinuzzi@mofo.com 

mhager@mofo.com 

jpintarelli@mofo.com 

Counsel for Louis J. Freeh, Chapter 11 Trustee 

11-02790-mg Doc 1215 Filed 03/30/12 Entered 03/30/12 15:50:45 Main Document 

 Pg 8 of 8