1 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK NOT FOR PUBLICATION

In re 

MF GLOBAL INC.,

 Debtor. 

Case No. 11-2790 (MG) SIPA 

MEMORANDUM OPINION APPROVING STIPULATION AND RESOLVING 

OBJECTIONS RELATING TO RELEASE OF CLAIMS FROM FUTURES 

CUSTOMERS AND GRANTING SIPA TRUSTEE’S MOTION TO APPROVE FIRST 

INTERIM DISTRIBUTION FOR ALLOWED COMMODITY FUTURES CLAIMS 

A P P E A R A N C E S:

HUGHES HUBBARD & REED LLP 

Counsel for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc. 

One Battery Park Plaza 

New York, New York 10004 

By: James B. Kobak, Jr., Esq. 

 Christopher K. Kiplok, Esq. 

 Jeffrey S. Margolin, Esq. 

 Josiah S. Trager, Esq. 

 Anson B. Frelinghuysen, Esq. 

 Meaghan C. Gragg, Esq. 

 Dustin P. Smith, Esq. 

COMMODITY FUTURES TRADING COMMMISSION 

Three Lafayette Plaza 

1155 21st Street N.W. 

Washington, D.C. 20581 

By: Dan M. Berkovitz, Esq. 

 Jonathan L. Marcus, Esq. 

 Robert B. Wasserman, Esq. 

 Martin B. White, Esq. 

 Robert A. Schwartz, Esq. 

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ENTWISTLE & CAPPUCCI LLP 

Counsel for Paradigm Global Fund I Ltd., Paradigm Equities Ltd., 

Paradigm Asia Ltd., Augustus International Master Fund, L.P., Zybr 

Holdings, LLC, William Schur, Futures Capital Management, LLC, 

Ali A. Rangchi Bozorki, MTrust Co. FBO James M. Mayer, MTrust 

FBO James Mayer 

280 Park Avenue, 26th Floor West 

New York, New York 10017 

By: Andrew J. Entwistle, Esq. 

 Joshua K. Porter, Esq. 

 Jordan A. Cortez, Esq. 

-andSUSMAN GODFREY LLP 

Counsel for Paradigm Global Fund I Ltd., Paradigm Equities Ltd., 

Paradigm Asia Ltd., Augustus International Master Fund, L.P., Zybr 

Holdings, LLC, William Schur, Futures Capital Management, LLC, 

Ali A. Rangchi Bozorki, MTrust Co. FBO James M. Mayer, MTrust 

FBO James Mayer 

560 Lexington Avenue, 15th Floor 

New York, New York 10022 

By: William Christopher Carmody, Esq. 

 Jacob W. Buchdahl, Esq. 

-andSUSMAN GODFREY LLP 

Counsel for Paradigm Global Fund I Ltd., Paradigm Equities Ltd., 

Paradigm Asia Ltd., Augustus International Master Fund, L.P., Zybr 

Holdings, LLC, William Schur, Futures Capital Management, LLC, 

Ali A. Rangchi Bozorki, MTrust Co. FBO James M. Mayer, MTrust 

FBO James Mayer 

1901 Avenue of the Stars, Suite 950 

Los Angeles, California 90067-6029 

By: Marc M. Seltzer 

NISEN & ELLIOT, LLC 

Counsel for Henning-Carey Proprietary Trading, Charles Carey, 

Joseph Niciforo, Robert Tierney, Brian Fisher, Shane McMahon, 

Michael Mette, and Timothy Zaug 

200 West Adams Street 

Chicago, Illinois 60606 

By: Michael H. Moirano, Esq. 

 Claire E. Gorman, Esq. 

 Brittany E. Kirk, Esq. 

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LOUIS F. BURKE P.C. 

Counsel for David Accomazzo and Roberto Calle Gracey 

460 Park Avenue, 21st Floor 

New York, New York 10022 

By: Louis F. Burke, Esq. 

 Leslie Wybiral, Esq. 

 

FORD MARRIN ESPOSITO WITMEYER & GLESER, LLP 

Counsel for Sapere Wealth Management, LLC, Granite Asset Management, 

and Sapere CTA Fund, LP 

Wall Street Plaza 

New York, New York 10005 

By: John J. Witmeyer III, Esq. 

 Jon R. Grabowski, Esq. 

 Stephen R. Chuk, Esq. 

-andHOWARD, STALLINGS, FROM & HUTSON, P.A. 

Counsel for Sapere Wealth Management, LLC, Granite Asset Management, 

and Sapere CTA Fund, LP 

5410 Trinity Road, Suite 210 

P.O. Box 12347 

Raleigh, North Carolina 27605 

By: Joseph H. Stallings, Esq. 

MCCARTER & ENGLISH, LLP 

Counsel for Occidental Energy Marketing Inc. 

245 Park Avenue 

New York, New York 10167 

By: David J. Adler, Esq. 

 

-andMCCARTER & ENGLISH, LLP 

Counsel for Occidental Energy Marketing Inc. 

405 North King Street, 8th Floor 

Wilmington, Delaware 19801 

By: Katharine L. Mayer, Esq. 

ZACH ZUNSHINE 

Counsel for Claimant Jill Zunshine

P.O. Box 231398 

New York, New York 10023 

By: Zach Zunshine, Esq. 

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BARNES & THORNBURG LLP 

Counsel for Patrick O’Malley, M.D., Matthew Johnson, and 

Michael Dokupil

One N. Wacker Drive, #4400 

Chicago, Illinois 60606 

By: Vincent P. Schmeltz III, Esq. 

 Deborah L. Thorne, Esq. 

-andBARNES & THORNBURG LLP 

Counsel for Patrick O’Malley, M.D., Matthew Johnson, and 

Michael Dokupil

1000 N. West Street, Suite 1200 

Wilmington, Delaware 19801 

By: David M. Powlen, Esq. 

 

STUTZMAN, BROMBERG, ESSERMAN & PLIFKA, P.C. 

Counsel for Lee B. Stern, Jeffrey Stern, Daniel Stern, Richard Stark, 

Transcend Investments LLC, the Steven M. Abraham Revocable Trust, 

Murray Wise, and Carl Berg 

2323 Bryan Street, Suite 2200 

Dallas, Texas 75201-2689 

By: Sander L. Esserman, Esq. 

 Robert T. Brousseau, Esq. 

 Peter C. D’Apice, Esq. 

 David A. Klingler, Esq. 

MORRISON & FOERSTER LLP 

Counsel for Louis J. Freeh, Chapter 11 Trustee of MF Global Holdings Ltd. 

1290 Avenue of the Americas 

New York, New York 10104 

By: Brett H. Miller, Esq. 

Lorenzo Marinuzzi, Esq. 

Melissa A. Hager, Esq. 

John A. Pinarelli, Esq. 

FOLEY & LARDNER LLP 

Counsel for John Supple, Thomas Ritter, and Greenbriar Partners L.P. 

90 Park Avenue 

New York, New York 10016 

By: Richard J. Bernard, Esq. 

 Alissa M. Nann, Esq. 

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FOLEY & LARDNER LLP 

Counsel for John Supple, Thomas Ritter, and Greenbriar Partners L.P. 

321 N. Clark Street, Suite 2800 

Chicago, Illinois 60654 

By: Geoffrey S. Goodman, Esq. 

DEWEY & LEBOEUF LLP 

Counsel for the Statutory Creditors’ Committee of 

MF Global Holdings Ltd., et al.

1301 Avenue of the Americas 

New York, New York 10019 

By: Martin J. Bienenstock, Esq. 

 Michael P. Kessler, Esq. 

 Irena M. Goldstein, Esq. 

MARTIN GLENN 

UNITED STATES BANKRUPTCY JUDGE 

Before the Court are two related issues. The first issue arises from the Motion of James 

W. Giddens, SIPA Trustee for Liquidation of MF Global Inc., To Approve First Interim 

Distribution for Allowed Commodity Futures Claims (the “Claim Distribution Motion”). (ECF 

Doc. #1086.) Objections or responses were filed by: (1) the Commodities Futures Trading 

Commission (ECF Doc. #1098); (2) Jill Zunshine (“Zunshine Objection”) (ECF Doc. #1190); (3) 

Patrick O’Malley, M.D., Matthew Johnson, and Michael Dokupil (“O’Malley Objection”) (ECF 

Doc. #1206); (4) Certain MF Global Inc. Claimants (“Stern Objection”)1

 (ECF Doc. #1208); (5) 

Louis J. Freeh, Chapter 11 Trustee of MF Global Holdings Ltd. (ECF Doc. #1215); (6) John 

Supple, Thomas Ritter, and Greenbriar Partners, L.P. (“Greenbriar Objection”) (ECF Doc. 

#1216); (7) certain former futures accounts customers (the “Paradigm Objection 2”)2

 (ECF Doc. 

 

1

 The Certain MF Global Inc. Claimants are Lee B. Stern, Jeffrey Stern, Daniel Stern, Richard Stark, 

Transcend Investments LLC, the Steven M. Abraham Revocable Trust, Murray Wise, and Carl Berg. 

2

 The objectors are Paradigm Global Fund I Ltd.; Paradigm Equities Ltd.; Paradigm Asia Fund Ltd.; 

Augustus International Master Fund, L.P.; Zybr Holdings, LLC; Futures Capital Management, LLC; Pollack 

Commodity Partners; MTrust Co. FBO James M. Mayer; MTrust FBO James Mayer; William Schur; Ali A. 

Rangchi Bozorki; Henning-Carey Proprietary Trading, LLC; Charles Carey; Joseph Niciforo; James Groth; Robert 

Teirney; Brian Fisher; and Shane McMahon. 

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#1217); and (8) the Statutory Creditors’ Committee of MF Global Holdings Ltd. (ECF Doc. 

#1277). The SIPA Trustee filed an Omnibus Reply addressing all of the objections and 

responses. (ECF Doc. #1297.) 

The second issue arose initially from a notice of presentment—Joint Notice of 

Presentment of Stipulation and Order Resolving Objection Relating to Assignment and Release 

of Claims from Futures Customers (the “Stipulation”). (ECF Doc. #1050.) Because two 

objections were filed in response by certain former commodities futures account customers (the 

“Paradigm Objection”)3 (ECF Doc. #1111) and Sapere Wealth Management, Granite Asset 

Management, and Sapere CTA Fund, L.P. (the “Sapere Objection”) (ECF Doc. #1112), the 

matter was scheduled for hearing on April 12, 2012. The SIPA Trustee filed a Response in 

Further Support of the Stipulation (the “Response”), which included an Amended Stipulation, 

drafted in coordination with some of the objectors. (ECF Doc. #1274.) On April 10, Occidental 

Energy Marketing Inc. submitted a reservation of rights in response to the SIPA Trustee’s 

Response. (ECF Doc. #1307.) 

After the Court heard oral argument on April 12, 2012, the SIPA Trustee amended his 

request for relief, (i) withdrawing his request for Court approval of an assignment of claims by 

commodities customers against third parties in order for the customers to receive distributions on 

net equity claims and (ii) modifying the form of release required from commodities customers 

before receiving such distributions. That withdrawal and modification were consolidated into 

 

3

 The objectors are Paradigm Global Fund I Ltd.; Paradigm Equities Ltd.; Paradigm Asia Fund Ltd.; 

Augustus International Master Fund, L.P.; Zybr Holdings, LLC; Futures Capital Management, LLC; Pollack 

Commodity Partners; MTrust Co. FBO James M. Mayer; MTrust FBO James Mayer; William Schur; Ali A. 

Rangchi Bozorki; Henning-Carey Proprietary Trading, LLC; Charles Carey; Joseph Niciforo; James Groth; Robert 

Teirney; Brian Fisher; and Shane McMahon. 

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one proposed order, the Order in Furtherance of Claims Processing Order (the “Third Amended 

Release”). 

BACKGROUND

The background of this case has been discussed in numerous opinions of this Court and 

will not be repeated here. On November 2, 2011, the Court approved the SIPA Trustee’s initial 

request to complete a bulk transfer of customer accounts containing open U.S. commodity 

contracts and a percentage of the associated margining collateral to futures commissions 

merchants (“FCMs”) other than MFGI. (ECF Doc. #14.) On November 17, 2011, the Court 

approved a second partial transfer of certain customers’ cash-only accounts. (ECF Doc. #316.) 

On December 9, 2011, the Court approved a third bulk transfer of certain property of 

commodities futures customers, including 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 (the “Physical Customer Property”) (ECF Doc. #717), and also a bulk 

transfer of certain property of securities customers (ECF Doc. #718) (together, the “Third Bulk 

Transfer Order”). Through the bulk transfers, the SIPA Trustee was ultimately able to distribute 

approximately 72% of the net liquidating value of each domestic account based on the unaudited 

books and records of MFGI, rather than on individual claims filed by customers. 

On November 23, 2011, the Court entered an order approving the Trustee’s Expedited 

Application To Establish Parallel Customer Claims Processes (the “Claims Process Order”). 

(ECF Doc. #423.) That Order established a Bar Date for filing of claims by commodities and 

securities customers and all other creditors against MFGI. It also established the process for the 

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SIPA Trustee’s determination of customer claims (a “Finalized Claim”).4

 The bulk transfers 

allowed eligible customers to receive a 72% distribution of their property, except that those 

transfers were subject to each claimant’s Finalized Claim, which is the final resolution of the 

estate’s obligation to that customer. 

DISCUSSION 

A. The Claims Distribution Motion 

1. Requested Relief 

Through the Claims Distribution Motion, the SIPA Trustee seeks authority to (i) 

distribute up to approximately $600 million of “Segregated Funds”;5

 (ii) distribute up to 

approximately $50 million of “Secured Funds”;6 and (iii) establish a “Delivery Class” and 

distribute up to approximately $35 million of “Delivery Funds” to claimants with allowed claims 

for property within the Delivery Class (the “First Interim Claims Distribution”). The SIPA 

Trustee proposes to establish a Delivery Class comprised of all Physical Customer Property 

accounts, including Physical Customer Property that has been or will be reduced to cash in any 

manner, either before or after the Petition Date. This Delivery Class would include preexisting 

“Delivery Credits”7

 as well as “Frozen Proceeds”8 and funds obtained post-petition when 

 

4

 A claim is not finalized until a claimant either agrees with the determination of his claim by the SIPA 

Trustee or it has been resolved judicially. The Claims Process Order sets forth the mechanism for a customer to 

object to the SIPA Trustee’s determination of his claim and to seek orderly resolution by the Court of the claim. 

5

 “Segregated Funds” are funds within the class of assets used to support domestic futures trading, including 

suspended funds. Segregated Funds are from the same pool of customer property that nearly exclusively made up 

the funds transferred for the benefit of customers through the bulk transfer process. 

6

 “Secured Funds” are funds within the class of assets used to support foreign futures trading. Only a small 

portion of the Secured Funds has been recovered by the SIPA Trustee thus far, and no transfers or distributions from 

that pool of assets have been authorized to date. 

7

 As the Trustee explained in his moving papers: 

All Physical Customer Property was, in fact, prominently designated in the 

records of MFGI as associated with an “F/D” portion of the account. 

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Physical Customer Property was either (i) delivered against a customer’s obligation to deliver via 

restricted delivery; (ii) transferred to customers to effect the 72% distribution of the combined 

value of their Physical Customer Property and other domestic assets (including cash deposits 

posted by some customers to enable them to receive Physical Customer Property with an 

aggregate value above the 72% pro rata distribution to which they were entitled); or (iii) 

otherwise liquidated. 

The SIPA Trustee states that the First Interim Claims Distribution would be made on a 

rolling basis to customers with Finalized Claims. See Claim Distribution Mot., ¶ 19. The SIPA 

Trustee also contends that the amount of the First Interim Claims Distribution would not 

interfere with the SIPA Trustee’s maintenance of contingency amounts for each class of 

customer property, ensuring fair treatment of all of MFGI’s futures customers (including MFGI’s 

former foreign affiliates on behalf of those affiliates’ customers). See id. ¶ 8. The SIPA Trustee 

expects to maintain approximately $700 million in Segregated 

Funds (of which about one-half is claimed by foreign affiliates on 

behalf of their customers), approximately $10 million in Delivery 

Funds, and approximately $40 million in Secured Funds, in each 

case, to address potential disputes and, when practicable, make 

other interim distributions or a final distribution. 

Id. 

 Additionally, in the ordinary course, when a customer sought to deliver Physical 

Customer Property to fulfill a contractual obligation to sell, the proceeds of such 

sale (once cleared and posted to MFGI) were ultimately recorded in the “F/D” 

portion of the account. Indeed, some customers had pre-existing “F/D” credits 

as of the Filing Date (“Delivery Credits”)—the result of previous proceeds from 

making delivery. 

Claim Distribution Mot., ¶ 24. 

8

 “Frozen Proceeds” are the proceeds of delivery transactions that were processed in the days immediately 

around the Petition Date, but were suspended due to MFGI’s liquidation and held at derivative clearing 

organizations. 

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2. The Objections 

Objections were filed to the Claims Distribution Motion, primarily objecting to the SIPA 

Trustee’s requirement that commodities customers assign to the SIPA Trustee their claims 

against third parties before receiving a distribution of customers’ allowed claims.9

 Because the 

SIPA Trustee has withdrawn his request for the assignments, the Court will first discuss the 

remaining objection to the Claims Distribution Motion. 

The O’Malley Objection (ECF Doc. #1206) asserts that the SIPA Trustee incorrectly 

attempts to include Delivery Credits and Frozen Proceeds within the Delivery Class. The 

objectors argue that because the Delivery Credits and Frozen Proceeds are not “specifically 

identifiable property,” and, therefore, not within the definition of “delivery account,” the 

Delivery Class should only be comprised of physical commodities. Including Delivery Credits 

and Frozen Proceeds in the Delivery Class increases the total claims in that class. But because 

the SIPA Trustee has so far been unable to recover all of the cash associated with Delivery 

Credits and Frozen Proceeds, the inclusion of Delivery Credits and Frozen Proceeds in that Class 

dilutes the potential recovery of customers with claims to property in the Delivery Class, as the 

amount of claims is increased but the amount available to satisfy these claims remains fixed. 

The objectors also assert that the inclusion of Delivery Credits and Frozen Proceeds within the 

Delivery Class does not follow the intent of the Commodity Futures Trading Commission 

 

9

 The Zunshine Objection (ECF Doc. #1190), Stern Objection (ECF Doc. #1208), and Paradigm Objection 2 

(ECF Doc. #1217) deal with the assignment provision of the DRA. The Trustee has withdrawn his request for the 

assignments and the Court concludes below that the assignments obtained by the Trustee without court approval are 

void. See Part B.2, infra. At the hearing, Jill Zunshine’s counsel also objected to the propriety of the release itself, 

but the Court overruled the objection during the hearing. The Court concludes that theThird Amended Release is 

fully appropriate and warranted in the circumstances. See Part B.1, infra. 

 In addition to objecting to the Assignment provision in the DRA, the Stern Objection requested that the 

Court set a deadline for the completion of the Trustee’s determination of all claims. The Court overruled the 

objection, finding that Trustee and his team have been working expeditiously to resolve claims. Any deadline the 

Court sets would be arbitrary and detrimental to a fair and accurate determination of net equity claims. 

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(“CFTC”) regarding the creation of the “delivery account” class—shielding customers holding 

specifically identifiable property from the otherwise dilutive effect of the Part 190 Regulations’ 

pro rata distribution scheme. The objectors note that Delivery Credits and Frozen Proceeds 

were not required to be segregated nor in fact segregated and should not be allowed to be part of 

a “delivery account” class.

3. Legal Standard 

Liquidation of an FCM is subject to two separate regulatory regimes: the Securities 

Investor Protection Act (“SIPA”) and the Commodities Exchange Act (the “CEA”). Under both 

regimes, customers are entitled to a pro rata share of the applicable pools of customer property 

from separate customer account classes. Within the context of a SIPA liquidation, determining 

the claims of, and allocating customer property to, former MFGI commodity customers 

incorporates the interplay of subchapter IV of title 11 of the Bankruptcy Code, the CEA, and, as 

discussed below, 17 C.F.R. Part 190 (the “Part 190 Regulations”). See In re MF Global Inc., No. 

11-2790, 2012 WL 1146019, at *5 (Bankr. S.D.N.Y. Apr. 6, 2012).

The CFTC has enacted a set of procedures to guide trustees and assist courts in 

implementing the CEA and subchapter IV of title 11 of the Bankruptcy Code. See 17 C.F.R. 

§ 190 et seq. Those regulations: (1) define what constitutes customer property, see id. § 190.08; 

(2) establish a system of customer classes and account classes, which ensures a fair and orderly 

process of pro rata distribution, id. §§ 190.01(a), (m), (bb), & (hh); and (3) provide a formula for 

calculating allowable “net equity claims,” id. § 190.07. 

In establishing a system of customer and account classes, the Part 190 Regulations 

identify six potential account classes: futures accounts, foreign futures accounts, leverage 

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accounts, commodity option accounts, delivery accounts, and cleared OTC derivatives accounts. 

See id. § 190.01(a). “Delivery accounts” are defined as 

any account prominently designated as such in the records of the 

debtor which contains only the specifically identifiable property 

associated with delivery set forth in § 190.01(kk)(3), (4), and (5), 

except that with respect to § 190.01(kk)(4) and (5), delivery need 

not be made or taken and exercise need not be effected for such 

property to be included in a delivery account. 

Id. § 190.05(a)(2).10 

 

10 “Specifically identifiable property” is defined as 

(3) With respect to warehouse receipts, bills of lading or other documents of 

title, or physical commodities received, acquired, or held by or for the account 

of the debtor for the purpose of making or taking delivery or exercise from or 

for the account of a customer, any such document of title or commodity which 

as of the entry of the order for relief can be identified on the books and records 

of the debtor as received from or for the account of a particular customer as held 

specifically for the purpose of delivery or exercise. 

(4) Any cash or other property deposited prior to the entry of the order for relief 

to pay for the taking of physical delivery on a long commodity contract or for 

payment of the strike price upon exercise of a short put or a long call option 

contract on a physical commodity, which cannot be settled in cash, in excess of 

the amount necessary to margin such commodity contract prior to the notice date 

or exercise date, which cash or other property is identified on the books and 

records of the debtor as received from or for the account of a particular customer 

on or after three business days before the first notice date or three calendar days 

before the exercise date specifically for the purpose of payment of the notice 

price upon taking delivery or the strike price upon exercise, respectively, and 

such customer takes delivery or exercises the option in accordance with the 

applicable contract market rules. 

(5) The cash price tendered for any property deposited prior to the entry of the 

order for relief to make physical delivery on a short commodity contract or for 

exercise of a long put or a short call option contract on a physical commodity, 

which cannot be settled in cash, to the extent it exceeds the amount necessary to 

margin such contract prior to the notice date or exercise date, which property is 

identified on the books and records of the debtor as received from or for the 

account of a particular customer on or after three calendar days before the first 

notice date or three calendar days before the exercise date specifically for the 

purpose of a delivery or exercise, respectively, and such customer makes 

delivery or exercises the option in accordance with the applicable contract 

market rules. 

17 C.F.R. § 190.01(ll)(3)-(5) (2012) (effective April 9, 2012). This definition was previously located in section 

190.01(kk)(3)-(5) in the prior version of the Code of Federal Regulations. 

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The Court finds that Delivery Credits, Delivery Debits, and Frozen Proceeds properly 

belong in the Delivery Class pursuant to 17 C.F.R. §§ 190.05(a)(2) (defining “delivery account”) 

and 190.01(ll)(3)-(5) (defining “specifically identifiable property” to include cash or other 

property identified on the books and records of the debtor as related to delivery of Physical 

Customer Property or exercise of the related contracts), along with Physical Customer Property, 

despite the effect that they may have on the shortfall of that class. To the extent that Delivery 

Credits, Delivery Debits, and Frozen Proceeds were identified on the books and records of MFGI 

as related to the delivery of Physical Customer Property or exercise of the related contracts, the 

SIPA Trustee has properly classified this category of property. 

There is no requirement in the applicable statutes or regulations that Delivery Credits and 

Frozen Funds be segregated. MFGI’s failure to segregate this property does not exclude it from 

the definition of “specifically identifiable property” under 17 C.F.R. §§ 190.01(ll)(3)-(5). 

Section 190.08(c)(1) states that 

property held by or for the account of a customer, which is segregated 

on behalf of a specific account class, or readily traceable on the filing 

date to customers of such account class, must be allocated to the 

customer estate of the account class for which it is segregated or to 

which it is readily traceable.

17 C.F.R. § 190.08(c)(1) (emphasis added). The SIPA Trustee concluded that the Delivery 

Credits, Delivery Debits, and Frozen Proceeds are traceable to Physical Customer Property and 

are, therefore, properly classified in the Delivery Class even though the property was not 

segregated. Indeed, if they are excluded from the Delivery Class, their presence in another class 

would create a shortfall in that class.11 

 

11 The CFTC’s comments in the Federal Register on the final rules for the Part 190 Regulations state: 

Delivery Accounts. The question remains in most cases as to how to mitigate 

the dilution effect of the pro rata provisions of the Code with respect to property 

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During the hearing, counsel for the O’Malley objectors argued that 17 C.F.R. § 1.21 

mandates that trading proceeds not required to be segregated be allocated across customer 

classes rather than allocated to a single customer class. That argument was not contained in the 

O’Malley written objection, but counsel asserted that the argument was made in response to the 

SIPA Trustee’s Omnibus Reply. The Court allowed counsel to file a sur-reply (ECF Doc. 

#1374), limited to the impact of section 1.21 on the determination of the Claim Distribution 

Motion. The sur-reply mentions section 1.21 largely in passing and unpersuasively. Instead, the 

sur-reply improperly raises new and untimely arguments. The Court specifically concludes that 

section 1.21 is inapplicable to the issues here. 

Section 1.21, entitled “Care of money and equities accruing to customers,” states: 

All money received directly or indirectly by, and all money and 

equities accruing to, a futures commission merchant from any 

clearing organization or from any clearing member or from any 

member of a contract market incident to or resulting from any 

trade, contract or commodity option made by or through such 

futures commission merchant on behalf of any commodity or 

option customer shall be considered as accruing to such 

commodity or option customer within the meaning of the Act and 

these regulations. Such money and equities shall be treated and 

 or cash captured by the estate in the absence of any category of property which 

can be reclaimed in full. In this connection, the Commission believes that the 

best solution—and the one suggested by the commentators—is the creation of a 

separate class of accounts denominated “Delivery Accounts.” The Commission 

is, therefore, adding in § 190.05(a)(2), an account class denominated “delivery 

accounts,” to the other account classes. This account class contains only the 

property referred to in §§ 190.01(kk)(3), (4), and (5). 

Property segregated on behalf of a delivery account, under the allocation 

provisions, will be allocated only to that account class. This means that 

although this property will not be distributed to the extent its value exceeds a 

claimant’s net equity claim and will be distributed pro rata among claimants 

with delivery claims with are of the same class, it will not be diluted by other 

types of customer claims. This solution reduces the dilution effect of proration 

without offending the basic principles of proration of equivalent claims. The 

Commission’s broad authority with respect to deliveries should be noted in this 

connection. 

Final Rules, Commodity Futures Trading Commission, 17 CFR Part 190, 48 Fed. Reg. 8716, 8731 (Mar. 1, 1983) 

(codified at 17 C.F.R. Part 190) (footnotes omitted). 

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dealt with as belonging to such commodity or option customer in 

accordance with the provisions of the Act and these regulations. 

Money and equities accruing in connection with commodity or 

option customers’ open trades, contracts, or commodity options 

need not be separately credited to individual accounts but may be 

treated and dealt with as belonging undivided to all commodity or 

options customers having open trades, contracts, or commodity 

option positions which if closed would result in a credit to such 

commodity or option customers. 

17 C.F.R. § 1.21 (emphasis added). That provision does not deal with the distribution of 

specifically identifiable property in an FCM liquidation. Moreover, the language in section 1.21 

is permissive, stating that money and equity incident to a trade or contract “may be treated and 

dealt with as belonging undivided to all commodity or options customers”; it does not require 

that property to be treated as such. For these reasons, the Court overrules the O’Malley 

Objection. 

4. Conclusion 

Because the Part 190 Regulations include Delivery Credits and Frozen Proceeds in the 

definition of “specifically identifiable property,” the SIPA Trustee has correctly included them in 

the Delivery Class. 

B. The Amended Stipulation 

Without seeking Court approval or disclosing the condition, the SIPA Trustee required 

claimants to sign a “Declaration, Release and Assignment” form (the “DRA”) before receiving 

any distribution of allowed net equity claims. See Paradigm Obj., ¶¶ 2, 9; Resp., ¶ 5. To date, 

the SIPA Trustee has sent individual claim determination letters to over 21,000 claimants and 

has received in excess of 7,500 executed DRAs in response. Resp., ¶ 5. Neither the Claims 

Process Order nor any of the Bulk Transfer Orders provided for any release or assignment 

agreement; nor did the Claim Distribution Motion seek approval of a mandatory release and 

assignment agreement. 

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The DRA required claimants to release their claims against the estate and assign their 

claims against third parties to the SIPA Trustee before receiving payment of their allowed 

claims. Only the numerous objections filed by claimants brought this issue to the Court’s 

attention. The SIPA Trustee Response did not provide any legal authority for requiring 

commodities customers to assign the customers’ claims against third parties to the SIPA Trustee. 

The objectors argued that customers receiving distributions required by applicable statutes and 

regulations cannot be compelled to transfer their claims in return for the distributions. The Court 

took the Motion under submission at the hearing. Several days after the hearing, the SIPA 

Trustee advised the Court that he withdraws his request for approval for the assignments. 

Further negotiations with the objectors have largely resolved the issues concerning the proposed 

release. 

1. The Release Provision 

The SIPA Trustee initially submitted for the Court’s approval a proposed Amended 

Stipulation that modified the original release language. The Amended Stipulation attempted to 

clarify that some claims are “carved out” of the DRA; namely the DRA shall not release 

any claims against any current or former employee, officer, or director 

of MF Global Holdings, Ltd., or any of its subsidiaries or affiliates, 

including MFGI, except with respect to any work performed by such 

employee, officer, or director in connection with the Liquidation 

Proceeding under the supervision of the Trustee. 

Resp., ¶ 21; Am. Stipulation, ¶ 3. 

Nevertheless, some objections remained. During the hearing the scope of the 

disagreement between the SIPA Trustee and objectors narrowed further, and the parties agreed to 

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confer in an effort to find acceptable language, resulting in the proposed Third Amended Release 

that is now before the Court.12 

 The Third Amended Release clarifies that claimants receiving a distribution based on 

their net equity claims must agree to release the SIPA Trustee, the Securities Investor Protection 

Corporation (“SIPC”), and MFGI from any net equity claim in any amounts other than as 

approved in the claim determination and agreed to by the claimant. The principle is simple: once 

the SIPA Trustee and a claimant reach agreement on a net equity claim, the claimant cannot later 

 

12 The Third Amended Release provides, in pertinent part: 

(ii) The release language contained in the prior Declaration, Release and 

Assignment form shall be deemed amended for all purposes as reflected in 

Exhibit A to releasing claims for actual payments or distributions to a 

commodities customer only to the extent of funds such commodities customer 

actually receives on account of the customer’s allowed commodities net equity 

claim from the Trustee in connection with this proceeding. 

(iii) the prior Declaration, Release and Assignment and the amended form of the 

Declaration and Release shall not release any claims against any current or 

former employee, officer, or director of MF Global Holdings, Ltd., or any of its 

subsidiaries or affiliates, including MFGI, except with respect to any work 

performed by such employee, officer, or director in connection with this 

proceeding under the supervision of the Trustee. 

(iv) There are and shall be no third-party beneficiaries of the prior Declaration, 

Release and Assignment form and/or the amended Declaration and Release and 

only Released Persons (as defined therein) may assert any release contained 

therein. 

(v) The Declaration, Release and Assignment form and the amended Declaration 

and Release will not alter or limit any rights a commodities customer has, or any 

standing the commodities customer has, to assert claims against third parties 

other than the Released Persons (as defined therein), and to recover against such 

third parties on such claims. 

(vi) The Declaration, Release and Assignment form and the amended 

Declaration and Release will not alter the relative priority of a commodities 

customer and the Trustee to assert or recover on any claims against third parties 

other than the Released Persons (as defined therein). 

(vii) The Declaration, Release and Assignment form and the amended 

Declaration and Release shall not release or extend to any general unsecured 

claims asserted by a commodities customer in this proceeding in addition to the 

commodities net equity claim subject to the form. 

Third Am. Release, at 2–3. 

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contest that determination. Any claimant that objects to the SIPA Trustee’s claim determination 

remains free to contest it in accordance with the procedures set forth in the Claims Process 

Order; it is only where the claimant agrees with the claim determination and will receive a pro 

rata distribution based on the net equity claim that a release is required. 

The Court concludes the proposed release is fully appropriate and warranted in the 

circumstances; no one really argues to the contrary. The objections to the release focused on the 

specific language used, not to the concept. But still remaining is the issue of how to deal with 

signed DRAs already received by the SIPA Trustee from claimants containing language the 

SIPA Trustee has now agreed to change. The Third Amended Release attempted to address 

those 7,500-plus customers who signed and returned the earlier version of the DRA to the SIPA 

Trustee: 

[T]hose commodities claimants who already signed and returned 

the prior Declaration, Release and Assignment form to the Trustee 

or filed it with the Court need not take further measures as the 

prior Declaration, Release and Assignment form which is hereby 

modified and clarified by this Order shall be in full force and effect 

in such modified form upon entry of this Order . . . . 

Third Am. Release, at 3. The clarification of the Release language benefits the claimants, and 

the SIPA Trustee agrees that the modified Release provisions apply to all claimants who agree 

upon the claim determination. But must the SIPA Trustee have claimants sign new releases, or 

may the Release language be deemed changed and effective as to all claimants who executed the 

prior Release? 

If this were the only issue concerning the document containing the release, the Court 

might be prepared simply to deem the release modified. But the same document contains the 

Assignment provision, which as explained below, is void and unenforceable. The Court, 

therefore, concludes that the SIPA Trustee must obtain new releases from all claimants that will 

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receive a distribution, even though imposing this requirement will add to the SIPA Trustee’s 

administrative burden and expense. This requirement is, in short, a self-inflicted wound. 

2. The Assignment Provision 

During oral argument, considerable colloquy focused on the Assignment provision in the 

DRA that the SIPA Trustee required all claimants receiving a distribution to sign. The original 

assignment language in the DRA provided: 

Further, Claimant hereby assigns and transfers to the Trustee and SIPC 

all rights, including any and all claims and causes of action, and any 

proceeds derived therefrom, that Claimant may have against any party, 

arising out of or relating to the Claim, the circumstances that gave rise 

to the Claim and the Account, to the extent of the Consideration. 

Resp., Ex. A. The Amended Stipulation sought to make clear that the SIPA Trustee is permitted 

to take assignments of the portion of a customer’s claims against third parties in the amount of 

actual payments received from the SIPA Trustee in satisfaction of those claims. See Resp., ¶ 20; 

Am. Stipulation, ¶ 4. The Amended Stipulation also stated that the DRA would not limit a 

customer’s right to assert claims against third parties (other than the SIPA Trustee, his agents and 

professional, MFGI, and SIPC and its agents, employees, and professionals) and to recover 

against such third parties on any such unsatisfied claims. See Resp., ¶ 20; Am. Stipulation, ¶ 7. 

But the SIPA Trustee still maintained that customers’ assignment of their claims would be a 

prerequisite to receiving any payment in satisfaction of net equity claims. 

The argument in the written objections and at the hearing focused on whether the SIPA 

Trustee can condition receipt of distributions required by SIPA, the Bankruptcy Code, the CEA, 

and the Part 190 Regulations on claimants’ assigning their rights to assert claims against third 

parties for any losses the claimants suffered. Numerous class actions have already been filed by 

MFGI commodities customers against third parties seeking recovery of the claimants’ losses. At 

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the conclusion of the hearing, the Court took the matter under submission. Several days later, 

however, the SIPA Trustee’s counsel advised the Court that the SIPA Trustee withdraws the 

requirement that claimants execute the assignment.13 Because the SIPA Trustee has withdrawn 

his demand that claimants assign their claims against third parties to the SIPA Trustee, it is 

unnecessary for the Court to decide whether such a requirement could be imposed by the SIPA 

Trustee with Court approval before customers can receive distributions on otherwise agreed 

claims. The issue remains, however, about the status of the assignments already received by the 

SIPA Trustee. As explained below, the Court concludes that the assignments already received 

are void and shall be of no further force or effect. 

A SIPA trustee’s standing to assert claims that belong to customers of a defunct firm has 

been a subject of contention and decisions by other courts. See, e.g., Picard v. HSBC Bank PLC, 

454 B.R. 25 (S.D.N.Y. 2011). That issue has not been presented to this Court, and nothing in 

this Opinion addresses that issue. No doubt seeking to avoid that issue, the SIPA Trustee 

apparently imposed the requirement that claimants assign their claims against third parties to the 

SIPA Trustee. Whether the Assignment provision drafted by the SIPA Trustee would avoid the 

problem that SIPA trustees have had in other cases is a question that need not be addressed 

here.14 

 

13 The Third Amended Release states that “[a]ny and all assignments to the Trustee contained in the prior 

Declaration, Release and Assignment form are and shall be null and void and given no force and effect by any court 

of competent jurisdiction.” Third Am. Release, at 2. 

14 In Bankruptcy Services, Inc. v. Ernst & Young (In re CBI Holding Co., Inc.), 529 F.3d 432 (2d Cir. 2008), 

the Second Circuit addressed whether a distribution trust under a confirmed chapter 11 plan could assert an assigned 

claim that had belonged to a creditor against a third party and that had been assigned to the trust as part of the plan. 

The court stated: 

Allowing a debtor’s creditors to assign their claims for the benefit of the 

debtor’s estate permits debtors, creditors, and bankruptcy courts the flexibility in 

reorganizing or liquidating a debtor's assets necessary to achieve efficient 

administration of the reorganization or liquidation. Indeed, the voluntary and 

court-approved assignment at issue in this case perfectly illustrates how both a 

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Although the Court need not decide whether the SIPA Trustee can compel an assignment, 

it is clear that the SIPA Trustee could not obtain the assignments of claims belonging to 

commodity customers in exchange for distributions from the estate without first obtaining court 

approval. Section 363 of the Bankruptcy Code provides that a debtor “after notice and hearing, 

may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11 

U.S.C. § 363(b)(1) (emphasis added). Section 363(b)(1) applies because the SIPA Trustee is 

acquiring commodity customers’ claims using property of the estate “other than in the ordinary 

course of business.” See, e.g., In re The Colad Grp., Inc., 324 B.R. 208, 215 (Bankr. W.D.N.Y. 

2005) (requiring bankruptcy court approval for use of estate resources outside the ordinary 

course of the debtor’s business pursuant to section 363(b)(1)). Because the SIPA Trustee 

obtained the assignments without first obtaining Court approval, all of the assignments already 

obtained are void and of no further force or effect. To avoid any confusion or uncertainty arising 

from the approximately 7,500 DRA forms already returned to the SIPA Trustee, containing 

release language that has now been changed and an assignment of claims that is void, the SIPA 

Trustee must obtain new signed forms from all claimants. 

 debtor and its creditors can benefit from the flexibility that § 541(a)(7) of the 

Bankruptcy Code facilitates. The Barnes [v. Schatzkin, 215 A.D. 10, 212 

N.Y.S. 536 (1st Dep’t 1925)] view would unnecessarily hamstring those parties 

on the basis of an outdated version of the Bankruptcy Code. 

Id. at 459. Whether the CBI holding applies to a SIPA trustee need not be decided, but it is important to recognize 

that the court in CBI dealt with “the voluntary and court-approved assignment,” id., rather than a compelled 

assignment that was not presented to the Court for approval before insisting on the assignments from claimants. 

It should also be noted that in CBI a significant claim of a single creditor was assigned as part of a 

settlement with that creditor resolving the amount of the creditor’s allowed claim against the estate. Here, MFGI 

has approximately 23,000 commodity customer claims. If fewer than all claimants voluntarily assign their claims, 

questions would then arise whether estate assets should be used by the Trustee to prosecute claims of only some 

claimants. Whether the Trustee can compel claimants to assign their claims is now moot as the Trustee has 

withdrawn the request for the assignments. 

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CONCLUSION 

 For the reasons explained above, the Court GRANTS the Claims Distribution Motion. 

The Court also finds that the proposed Third Amended Release is appropriate and warranted in 

the circumstances, but finds that the Assignments executed by claimants to be void and without 

effect. The SIPA Trustee should submit proposed orders to the Court consistent with this 

Opinion. 

 

Dated: April 24, 2012 

 New York, New York 

 

 _____/s/Martin Glenn_______

 MARTIN GLENN 

United States Bankruptcy Judge 

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