ny-1043908 

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 

Attorneys for the Chapter 11 Trustee 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

FIRST REPORT OF LOUIS J. FREEH, 

CHAPTER 11 TRUSTEE OF MF GLOBAL HOLDINGS LTD., et al., 

FOR THE PERIOD OCTOBER 31, 2011 THROUGH JUNE 4, 2012

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In re 

MF Global Holdings Ltd., et al., 

 

 Debtors. 

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Chapter 11 

Case No. 11-15059 (MG) 

(Jointly Administered) 

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TABLE OF CONTENTS

INTRODUCTION......................................................................................................................... 1 

INITIAL CHAPTER 11 FILINGS.............................................................................................. 4 

I. MF Global Holdings Ltd. and MF Global Finance USA Inc. ............................................ 4 

A. October Petition Date and First Day Motions............................................................. 4 

B. The Initial Debtors’ Professionals .............................................................................. 7 

C. Description of the Initial Debtors’ Businesses.......................................................... 11 

STATUTORY CREDITORS’ COMMITTEE......................................................................... 11 

I. Committee Members......................................................................................................... 11

II. Committee Professionals .................................................................................................. 11

A. Dewey & LeBoeuf LLP............................................................................................ 11 

B. Capstone.................................................................................................................... 12 

C. Rust Consulting, Inc.................................................................................................. 12 

III. Committee Activity........................................................................................................... 12 

CHAPTER 11 TRUSTEE .......................................................................................................... 13 

I. Appointment of Chapter 11 Trustee ................................................................................. 13 

II. Trustee’s Professionals ..................................................................................................... 14 

A. Freeh Group International Solutions, LLC ............................................................... 14 

B. Freeh Sporkin & Sullivan, LLP ................................................................................ 15 

C. Morrison & Foerster LLP ......................................................................................... 15 

D. Pepper Hamilton LLP ............................................................................................... 16 

E. Covington & Burling LLP ........................................................................................ 17 

SUBSEQUENT CHAPTER 11 FILINGS................................................................................. 18 

I. MF Global Capital LLC, MF Global FX Clear LLC, MF Global Market Services LLC, 

and MF Global Holdings USA Inc. .................................................................................. 18 

A. Petition Date and First Day Motions ........................................................................ 18 

B. Appointment of Chapter 11 Trustee ......................................................................... 21 

C. Brief Description of the Businesses.......................................................................... 22 

DEBTORS’ OPERATIONS....................................................................................................... 22 

I. Description of Global Operations ..................................................................................... 22 

II. U.S. Debtors...................................................................................................................... 23 

A. Attrition of Employees.............................................................................................. 23 

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B. Real Estate and Leases.............................................................................................. 25 

C. Pre-petition Debt Facilities ....................................................................................... 26 

D. Equity Interests ......................................................................................................... 28 

E. Use of Cash Collateral .............................................................................................. 28 

MF GLOBAL INC...................................................................................................................... 29 

I. SIPA Trustee and Professionals........................................................................................ 30 

II. SIPA Trustee’s Duties Under SIPA.................................................................................. 30 

III. Description of MFGI Business/Role in Global Operations .............................................. 32 

A. Repos-To-Maturity ................................................................................................... 33 

B. The RRTM................................................................................................................ 37 

C. Pre-Petition Funding ................................................................................................. 39 

IV. Claims Filed Against the SIPA Estate .............................................................................. 46 

A. Legal Issues Related to the Debtors’ Claims ............................................................ 47 

MF GLOBAL GROUP ENTITIES IN THE UNITED KINGDOM...................................... 53 

I. MF Global Holdings Europe Limited............................................................................... 53 

II. MF Global U.K. Limited .................................................................................................. 53 

A. Reports Filed by the Special Administrators ............................................................ 54 

B. Overview of Issues Related to Special Administration of MFGUK......................... 54 

III. MF Global UK Services Limited...................................................................................... 60 

IV. MF Global Finance Europe Limited and MF Global MFG Overseas ............................. 60 

A. Creditors’ Committees of MFG Overseas and Finance Europe ............................... 62 

MF GLOBAL GROUP ENTITIES IN THE REST OF THE WORLD................................ 63 

I. Australia............................................................................................................................ 63 

II. Canada............................................................................................................................... 64 

III. Hong Kong........................................................................................................................ 65 

IV. India .................................................................................................................................. 66 

V. Ireland ............................................................................................................................... 68 

VI. Japan ................................................................................................................................. 68 

VII. Mauritius........................................................................................................................... 69 

VIII. Singapore .......................................................................................................................... 70 

IX. Taiwan............................................................................................................................... 71 

MISCELLANEOUS ISSUES..................................................................................................... 72 

I. Recovery of Trading Close Out Valuation ....................................................................... 72 

II. Recovery of Tax Refunds ................................................................................................. 72 

III. Sale of De Minimis Assets................................................................................................ 73 

IV. Insurance........................................................................................................................... 74 

A. MFG Assurance ........................................................................................................ 74 

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B. The E&O Policies ..................................................................................................... 75 

C. Substantive Provisions of the MFGA E&O Policies. ............................................... 76 

D. The D&O Policies..................................................................................................... 80 

E. Substantive Provisions of the D&O Policies. ........................................................... 81 

F. Insurance-Related Litigation..................................................................................... 83 

V. Litigation........................................................................................................................... 84 

A. Administration of the Chapter 11 Estate................................................................... 84 

B. Corporate Personhood............................................................................................... 86 

C. Miscellaneous Litigation........................................................................................... 87 

VI. Congressional Hearings and Testimony ........................................................................... 88 

VII. Third party Investigations................................................................................................. 89 

CONCLUSION ........................................................................................................................... 91 

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INTRODUCTION1

Prior to the commencement of the Chapter 11 Cases, MF Global Holdings Ltd. 

(“Holdings Ltd.”) and its worldwide affiliates and subsidiaries (collectively, the “MF Global 

Group”), through its regulated and unregulated broker/dealers (“B/D”) and futures commission 

merchants (“FCM”), were a leading brokerage firm offering customized solutions in the global 

cash and derivatives markets. The MF Global Group provided execution and clearing services 

for products in the exchange-traded and over-the-counter (“OTC”) derivatives markets, as well 

as for certain products in the cash market. The MF Global Group operated globally, with a 

presence in, among other locations, the United States, the United Kingdom, France, Singapore, 

Australia, Hong Kong, Canada, India and Japan, providing its clients with global market access 

to more than seventy securities and futures exchanges and facilitated trades in the OTC markets.

As the global economy soured in the Fall of 2011, the MF Global Group was confronted 

by numerous challenges. On September 1, 2011, Holdings Ltd. announced that the Financial 

Industry Regulatory Authority (“FINRA”) informed it that MF Global Inc. (“MFGI”), Holdings 

Ltd.’s regulated U.S. operating subsidiary, was required to modify its capital treatment of certain 

repurchase to maturity (“RTM”) transactions that were collateralized with European sovereign 

debt and increase its net capital pursuant to Securities and Exchange Commission (“SEC”) Rule 

15c3-1, with which MFGI complied. 

Thereafter, on October 24, 2011, Moody’s Investor Service (“Moody’s”) downgraded 

Holdings Ltd.’s rating to one notch above “junk” status based on its belief that (i) Holdings Ltd. 

would announce lower than expected earnings and (ii) the current low interest rate environment 

 

1

 This Court approved the appointment of Louis J. Freeh as chapter 11 trustee (the “Trustee”) on November 28, 

2011. On April 12, 2012, the Court requested that the Trustee submit a report on the status of the Chapter 11 Cases 

(as defined below) and the Trustee’s efforts to wind-down the Debtors’ (as defined below) estates (the “Report”). 

The Trustee reserves his right to amend this Report should further information arise pertaining to the facts and 

circumstances set forth in this Report. 

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and volatile capital markets conditions made it unlikely that the MF Global Group would be able 

to meet, in the short term, the profitability targets Moody’s had set for the MF Global Group. 

Moody’s also raised concerns about the MF Global Group’s RTM positions, increased risk 

appetite and capitalization, as well as internal risk management or control issues.2 

On October 25, 2011, Holdings Ltd. announced its results for its second fiscal quarter 

ended September 30, 2011. Holdings Ltd. disclosed that it posted a $191.6 million GAAP net 

loss in the second quarter, compared with a loss of $94.3 million for the same period the prior 

year. The net loss reflected, among other things, a decrease in net revenue primarily due to the 

contraction of proprietary principal activities. The loss also included valuation allowances 

against deferred tax assets, which accounted for $119.4 million of the $191.6 million in GAAP 

net loss. With regard to the RTM position, concerns over euro zone sovereign debt had caused 

global market fluctuations in prior months and, in particular, the weeks leading up to the 

bankruptcy filings of the Initial Debtors (as defined below). The MF Global Group’s weakened 

core profitability and increased risk-taking, in the form of its European RTM positions, led Fitch 

Ratings and Moody’s to further downgrade the MF Global Group to “junk” status on October 27, 

2011. This sparked an increase in margin calls against MFGI and an exodus of its customers, 

threatening overall liquidity. 

Following the October 24 Moody’s downgrade, some of MFGI’s principal regulators -- 

the Commodity Futures Trading Commission (“CFTC”), the SEC and the Chicago Mercantile 

Exchange (“CME”) -- expressed grave concerns about MFGI’s viability and whether it should 

continue operations in the ordinary course. The MF Global Group explored a number of 

 

2

 The MF Global Group held a long position totaling $6.3 billion in a short-duration European sovereign debt 

portfolio financed to maturity, which included debt securities of Belgium, Italy, Spain, Portugal and Ireland. These 

countries had some of the most troubled economies in the euro zone. The RTM exposure was divided between 

MFGI and FinCo (as defined below). 

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strategic alternatives with respect to its business operations, including a sale of the businesses in 

part or in whole. On October 30, 2011, with the MF Global Group’s overall liquidity quickly 

diminishing to unsustainable levels, a sale to Interactive Brokers collapsed when Holdings Ltd. 

advised Interactive Brokers, and the regulators, that a potential significant shortfall in customer 

segregated funds had been identified. 

Beginning on October 31, 2011 (the “October Petition Date”), several entities of the MF 

Global Group filed for bankruptcy, dissolution, administration and/or liquidation in the various 

jurisdictions in which the MF Global Group operated. This Report, among other things, 

summarizes the progress made to date in the chapter 11 cases (the “Chapter 11 Cases”) of 

Holdings Ltd., MF Global Finance USA, Inc. (“FinCo”) (together with Holdings Ltd., the 

“Initial Debtors”), MF Global Capital LLC (“Capital”), MF Global FX Clear LLC (“FX 

Clear”), MF Global Market Services, LLC (“Market Services,” and collectively with Capital 

and FX Clear, the “Unregulated Debtors”), and MF Global Holdings USA Inc. (“Holdings 

USA”, and collectively with the Unregulated Debtors, the “Subsequent Debtors,” and the 

Subsequent Debtors collectively with the Initial Debtors, the “Debtors”) to maximize the value 

of the Debtors’ estates for the benefit of creditors and all parties in interest. 

This Report focuses on the Debtors’ Chapter 11 Cases and the Trustee’s efforts to meet 

his duties under chapter 11 of title 11 of the United States Code, as amended (the “Bankruptcy 

Code”), and his fiduciary duty to maximize value and returns to the Debtors’ creditors. To 

maximize the creditors’ returns, the Trustee must realize value from the various entities of the 

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MF Global Group that are in administration or liquidation proceedings both domestically and 

abroad.3 

Initially, the Report details the Debtors, their Chapter 11 Cases, their businesses, the 

appointment of the Official Committee of Unsecured Creditors of MF Global Holdings Ltd., et 

al. (the “Committee”) and the Trustee, and the various professionals retained to assist with the 

wind-down of the Debtors’ estates. 

The focus of the Report then turns to the relationships between the Debtors and the MF 

Global Group, detailing the over $2 billion in financing provided by the Debtors to MFGI and 

the proprietary transactions entered into by the Debtors with and among MFGI and MF Global 

U.K. Limited (“MFGUK”). In addition, an analysis of the claims against the MF Global 

Group’s worldwide affiliates is provided. The Trustee has attempted to provide the most 

complete and transparent account of all of the Debtors’ claims against all other entities in the MF 

Global Group. 

Finally, the Report closes with a discussion of additional topics of interest that have 

arisen during the Chapter 11 Cases, including various court proceedings, litigations and 

testimony before Congress. 

INITIAL CHAPTER 11 FILINGS

I. MF GLOBAL HOLDINGS LTD. AND MF GLOBAL FINANCE USA INC. 

A. October Petition Date and First Day Motions 

On the October Petition Date, the Initial Debtors filed voluntary petitions under chapter 

11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of 

 

3

 For a summary of the claims filed by the Debtors and their non-debtor affiliates against all members of the MF 

Global Group that are the subject of liquidation proceedings and administrations throughout the world, see Exhibit 

A. 

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New York (the “Court”). On the October Petition Date, the Initial Debtors filed the following 

first day motions in order to make their transition to, and operation in, chapter 11 occur with 

minimum interruption or disruption to their businesses or loss of productivity or value. 

1. Joint Administration. 

The Initial Debtors requested the joint administration of their Chapter 11 Cases for 

procedural purposes only to reduce costs and facilitate the administrative process by avoiding the 

need for duplicative notices, applications, and orders. On November 2, 2011, the Court entered 

an order authorizing joint administration.4

2. Schedules and Statements Extension Motion. 

The Initial Debtors sought to extend the deadline to file their schedules of assets and 

liabilities and statements of financial affairs (collectively, the “Schedules”). Given the 

complexity of the Initial Debtors’ businesses, as well as the effort required to prepare for and 

conduct their Chapter 11 Cases on an emergency basis, the Initial Debtors determined that they 

would not be in a position to accurately complete their Schedules within the deadline provided 

by the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the Local 

Bankruptcy Rules for the Southern District of New York (the “Local Rules”). On November 2, 

2011, the Court entered an order extending the deadline for filing the Schedules.5

3. List of Creditors and Initial Notices. 

To ease the administrative burden of the Chapter 11 Cases on the Initial Debtors’ estates, 

the Initial Debtors requested authorization to (i) prepare a consolidated list of creditors in the 

form maintained in the ordinary course of business and in electronic format only, (ii) file a 

 

4

 Docket No. 19. 

5

 Docket No. 21. The deadline to file the Schedules subsequently was further extended. The Trustee filed the 

Schedules for five of the Debtors on May 18, 2012 and the remaining Debtor on May 30, 2012 (Docket Nos. 692–

701, 707, 708). 

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consolidated list of the 50 largest general unsecured creditors, and (iii) mail initial notices. The 

Initial Debtors also requested authority not to file (i) the consolidated list of creditors described 

above, but instead to make such lists available only upon request, and (ii) a list of each Initial 

Debtor’s equity security holders. On November 2, 2011, the Court entered an order granting the 

Initial Debtors’ requests, provided that a list of the Initial Debtors’ equity holders be maintained 

by GCG, Inc. (“GCG”), the Court-appointed claims and noticing agent, and made available upon 

request.6

4. Cash Management, Business Forms, and Intercompany Transfers. 

The Initial Debtors requested (i) a waiver of the requirement in the U.S. Trustee 

Guidelines that pre-petition bank accounts be closed and new post-petition bank accounts be 

opened, (ii) authority to continue to use all business forms existing immediately prior to the 

October Petition Date, without reference to the Initial Debtors’ status as debtors in possession, 

provided that the Initial Debtors would use their reasonable best efforts to refer to their status as 

debtors in possession on all checks issued after the commencement of the Initial Debtors’ 

Chapter 11 Cases and on other physical business forms after the Initial Debtors’ existing stock 

was exhausted, and (iii) authority to continue intercompany transactions among the Initial 

Debtors and accord superpriority status to all post-petition intercompany claims. The Court 

entered four interim orders and a final order on December 14, 2011 authorizing the Initial 

Debtors to continue using their existing bank accounts, cash management system and business 

forms, and to continue intercompany transactions among the Initial Debtors, according 

superpriority status to all post-petition intercompany claims.7

 

6

 Docket No. 20. 

7

 Docket Nos. 25, 119, 205, 254, 276. 

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5. Cash Collateral. 

The Initial Debtors sought authority to use funds held in their accounts (the “Cash 

Collateral”) at JPMorgan Chase Bank, N.A. (“JPM”) to maintain sufficient liquidity so that the 

Initial Debtors could continue to operate their businesses in the ordinary course of business 

during their Chapter 11 Cases. The Initial Debtors asserted that immediate and ongoing use of 

Cash Collateral was required to fund the day-to-day activities of the Initial Debtors, including 

payments to employees and vendors in the ordinary course of business whose services and goods 

were integral to the Initial Debtors’ operations. Without the use of the Cash Collateral, the Initial 

Debtors would be unable to pay for services and expenses necessary to preserve and maximize 

the value of the Initial Debtors’ estates. 

The Court entered an order on November 2, 2011 authorizing the Initial Debtors to use 

Cash Collateral on an interim basis, and an order on December 14, 2011 authorizing the Initial 

Debtors to use Cash Collateral on a final basis, subject to certain terms and restrictions.8

B. The Initial Debtors’ Professionals 

1. Skadden, Arps, Slate, Meagher & Flom LLP. 

On January 23, 2012, the Trustee filed an application to retain Skadden, Arps, Slate, 

Meagher & Flom LLP (“Skadden”), nunc pro tunc to the October Petition Date, as the Initial 

Debtors’ bankruptcy counsel through November 28, 2011 and thereafter as special counsel to the 

Trustee through March 31, 2012.9

 Prior to the October Petition Date, Skadden was retained for 

advice on strategic options in connection with efforts to respond to the Debtors’ financial 

circumstances. Skadden’s service included, among other things, assisting the Initial Debtors 

 

8

 Docket Nos. 26, 275. 

9

 Docket No. 386. 

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with restructuring their financial affairs and capital structure, and, as necessary, advising the 

Initial Debtors with respect to any reorganization cases filed under chapter 11 of the Bankruptcy 

Code. Skadden worked closely with the MF Global Group to restructure its business, and when 

those efforts failed, to file petitions under chapter 11 of the Bankruptcy Code and address the 

numerous issues that resulted therefrom. After his appointment, the Trustee sought to retain 

Skadden on a limited basis to capture the knowledge and insights into the cases that Skadden had 

gained during its tenure as the Initial Debtors’ proposed bankruptcy counsel, and to ensure a 

seamless transition to his professionals. Specifically, Skadden’s services were used to assist the 

Trustee with (i) the surrender of leased premises at 717 Fifth Avenue, (ii) tax refund matters, and 

(iii) other matters where Skadden had acquired material knowledge during its representation of 

the Initial Debtors. On February 9, 2012, the Court entered an order authorizing the retention of 

Skadden through and including March 31, 2012.10

2. FTI Consulting, Inc. 

On January 23, 2012, the Trustee filed an amended application to retain FTI Consulting, 

Inc. (“FTI”) as financial advisors to the Initial Debtors from October 31, 2011 to November 28, 

2011, and as financial advisors to the Trustee thereafter.11 FTI provides consulting and advisory 

services, including assistance with (i) the preparation of financial-related disclosures required by 

the Court, the Bankruptcy Code, the Bankruptcy Rules and the Local Rules, (ii) analyses related 

to the pursuit of debtor in possession financing and the use of Cash Collateral, (iii) the 

identification and implementation of short-term cash management procedures, (iv) the 

development and implementation of key employee retention and other critical employee benefit 

 

10 Docket No. 436. 

11 Docket No. 389. 

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programs, (v) the identification of core business assets and the disposition of assets or liquidation 

of unprofitable operations, (vi) the identification of executory contracts and leases and analysis 

of cost/benefit evaluations with respect to the affirmation or rejection of each, (vii) the valuation 

of the present level of operations and identification of areas of potential cost savings, (viii) 

analysis of creditor claims, including assisting with development of databases, as necessary, to 

track such claims, (ix) monitoring the various other insolvency proceedings and administrations 

of the Initial Debtors’ affiliates, (x) the evaluation and analysis of avoidance actions, (xi) 

forensic accounting, forensic reviews and investigations, information technology issues, data 

retention, data preservation, data collection, and data analysis, and (xii) certain other issues 

related to the Chapter 11 Cases. On February 9, 2012, the Court entered an order authorizing the 

retention of FTI.12

3. Kasowitz, Benson, Torres & Friedman LLP. 

On January 23, 2012, the Trustee filed an application to retain Kasowitz, Benson, Torres 

& Friedman LLP (“Kasowitz”) as the Initial Debtors’ conflicts counsel through November 28, 

2011 and thereafter as special investigative counsel to the Trustee through March 31, 2012.13 

Kasowitz’s tasks consisted primarily of assisting the Trustee in connection with certain formal 

and informal investigative matters and the transition of those matters to the Trustee and his 

counsel, Freeh Sporkin & Sullivan, LLP. Since the October Petition Date, the Initial Debtors 

have received numerous subpoenas and information requests from various governmental 

agencies such as the SEC and the CFTC, which require the preservation, collection and review of 

voluminous data and documents in the possession, custody or control of the Initial Debtors. 

 

12 Docket No. 438. 

13 Docket No. 384. 

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Kasowitz had been selected earlier by the Initial Debtors as conflicts counsel to coordinate their 

document preservation efforts and respond to various investigative subpoenas and requests. The 

Trustee subsequently sought to retain Kasowitz as special investigative counsel for a limited time 

to (i) take advantage of the knowledge and experience that Kasowitz acquired in representing the 

Initial Debtors in these matters prior to the appointment of the Trustee, (ii) avoid unnecessary 

duplication of efforts, and (iii) assist the Trustee in expeditiously responding to the numerous 

investigations and requests for information, and managing the process of identifying, preserving, 

collecting and analyzing electronic and hard copy documents in the Initial Debtors’ possession, 

custody and control. On February 9, 2012, the Court entered an order authorizing the retention 

of Kasowitz.

14 

4. GCG. 

On October 31, 2011, the Initial Debtors filed an application to retain GCG as the claims 

and noticing agent for the Initial Debtors’ Chapter 11 Cases.15 In light of the number of 

anticipated claimants and parties in interest, the Initial Debtors believed that appointing GCG, an 

independent third party, to act as claims and noticing agent would provide the most effective and 

efficient means, and relieve the Initial Debtors and the Clerk’s Office of the administrative 

burden, of noticing, administering claims, and assisting in other administrative tasks. On 

November 2, 2011, the Court entered an order authorizing the retention of GCG.16 

 

14 Docket No. 439. 

15 Docket No. 5. 

16 Docket No. 22. 

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C. Description of the Initial Debtors’ Businesses 

1. Holdings Ltd. 

Holdings Ltd. was a public company that traded on the New York Stock Exchange under 

the ticker symbol “MF,” and since the October Petition Date trades under the ticker symbol 

“MFGLQ”. Holdings Ltd. is a corporate holding company that is the direct or indirect parent of 

all of the other companies in the MF Global Group. 

2. FinCo. 

FinCo is a New York corporation that provided financing services to affiliated companies 

and third parties. 

STATUTORY CREDITORS’ COMMITTEE

I. COMMITTEE MEMBERS 

On November 7, 2011, the Office of the United States Trustee (the “U.S. Trustee”), 

under Bankruptcy Code sections 1102(a) and (b), appointed the following unsecured creditors to 

the Committee: (1) Wilmington Trust Company, (2) JPM, (3) Bank of America, N.A. (“BoA”), 

(4) Elliot Management Corporation, and (5) Caplin Systems Ltd.17

II. COMMITTEE PROFESSIONALS 

A. Dewey & LeBoeuf LLP 

On January 19, 2012, the Court authorized the Committee’s retention of Dewey & 

LeBoeuf LLP (“Dewey”) as legal counsel, nunc pro tunc to November 9, 2011, to advise and 

assist the Committee with respect to the administration of the Chapter 11 Cases.18 

 

17 Docket No. 51. Upon information and belief, Elliot Management Corporation has resigned from the 

Committee. 

18 Docket No. 377. The Trustee has been advised that the Committee will substitute Proskauer Rose LLP 

(“Proskauer”) for Dewey as counsel. 

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B. Capstone 

On February 9, 2012, the Court authorized the Committee’s retention of Capstone 

Advisory Group, LLC, together with its wholly-owned subsidiary Capstone Valuation Services, 

Inc. (“Capstone”, and together with Proskauer, the “Committee Professionals”), as its financial 

advisor, nunc pro tunc to November 9, 2011, to help guide the Committee through the Debtors’ 

reorganization efforts and to assist it in the tasks associated with negotiating and implementing a 

chapter 11 plan.19 

C. Rust Consulting, Inc. 

On May 5, 2012, the Committee filed an application to retain Rust Consulting, Inc. as 

administrative agent to establish and maintain the Committee’s website and to assist the 

Committee in providing the Debtors’ unsecured creditors with access to information in 

connection with the Chapter 11 Cases.20 The application will be heard by the Court on June 14, 

2012. 

III. COMMITTEE ACTIVITY 

On March 7, 2012, the Court entered the Stipulation and Agreed Order Between the 

Chapter 11 Trustee and the Statutory Creditors’ Committee of MF Global Holdings Ltd., et al. 

Regarding Creditor Access to Information Pursuant to 11 U.S.C. §§ 105(a), 1102(b)(3) and 

1103(c),

21 which sets forth the procedures for creditors’ access to information and provides that a 

vendor be retained by the Committee to serve as administrative agent for the Committee website. 

 

19 Docket No. 435. 

20 Docket No. 668. 

21 Docket No. 533. 

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As noted, the Committee selected Rust Consulting, Inc. to serve as administrative agent, subject 

to Court approval. 

CHAPTER 11 TRUSTEE

I. APPOINTMENT OF CHAPTER 11 TRUSTEE 

On November 21, 2011, the Initial Debtors and the Committee filed a joint emergency 

motion requesting that the Court direct the appointment of a chapter 11 trustee to reorganize 

and/or liquidate the Debtors’ assets for the benefit of the Debtors’ estates, their creditors, and 

other stakeholders.22 The Debtors and the Committee believed that a court-appointed chapter 11 

trustee would have the reputation, experience, and confidence to manage and coordinate the 

investigations of the various court-appointed administrators and regulators in the MF Global 

Group administrations, and would do so in a manner that is more efficient and cost effective than 

could be achieved by the debtors in possession. The Initial Debtors and the Committee also 

believed that the appointment of a chapter 11 trustee would be in the best interests of the Initial 

Debtors’ estates and the stakeholders of those estates, allowing the trustee to aid in the 

management of, and facilitate, global cooperation with the various court-appointed 

administrators and regulators of the non-Debtors of the MF Global Group, as well as work with 

the Committee for the prompt recovery of assets for the benefit of creditors. 

On November 22, 2011, the Court entered an order directing the appointment of a chapter 

11 trustee.23 

 

22 Docket No. 131. 

23 Docket No. 156. 

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On November 25, 2011, the U.S. Trustee appointed the Trustee, which appointment was 

approved by the Court and accepted by the Trustee on November 28, 2011 and December 2, 

2011, respectively.24 

II. TRUSTEE’S PROFESSIONALS25

A. Freeh Group International Solutions, LLC 

On January 23, 2012, the Trustee filed an application to retain Freeh Group International 

Solutions, LLC (“FGIS”) as his business and operations advisors, nunc pro tunc to November 

28, 2011,26 to (i) manage the facilitation and coordination of information and data exchange 

between the various worldwide administrations, (ii) coordinate workflow administration between 

the Trustee’s professionals, the Committee and its professionals, and the various worldwide 

administrations, (iii) assist the Trustee with the day-to-day management of the bankruptcy 

process, including evaluation of strategic and tactical options with respect to the liquidation 

proceeding respecting MFGI under the Securities Investor Protection Act of 1970, 15 

U.S.C. § 78aaa, et seq., as amended (“SIPA”), and various insolvency administrations 

throughout the world, as well as management of the wind-down of the Debtors’ operations, and 

(iv) assist the Trustee in undertaking additional tasks that the Court may direct, to the extent 

those tasks are consistent with these delineated services. As part of the above tasks, FGIS 

formulates for the Trustee strategies for the cost-effective utilization of existing company 

personnel and the integration of the company’s staff with the financial advisory team and other 

professionals retained in the Chapter 11 Cases. 

 

24 Docket Nos. 168, 170, 210. 

25 The Trustee’s professionals have agreed, at the request of the Trustee, to a 10% reduction of their hourly rates. 

26 Docket No. 390. 

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On April 5, 2012, the Trustee and the U.S. Trustee entered into a stipulation regarding the 

retention and employment of FGIS,27 and on April 10, 2012, the Court entered an order 

authorizing such retention.28

B. Freeh Sporkin & Sullivan, LLP 

On January 23, 2012, the Trustee filed an application to retain Freeh Sporkin & Sullivan, 

LLP (“FSS”) as his investigative counsel, nunc pro tunc to November 28, 2011,29 to (i) represent 

the Trustee in his dealings with various regulatory authorities, (ii) represent the Trustee in his 

dealings with various prosecutors’ offices and law enforcement authorities, (iii) represent the 

Trustee in his dealings with various U.S. House and Senate Committees and Sub-Committees, 

(iv) coordinate information requests and responses to all regulators, congressional committees, 

prosecutors’ offices, lender groups, and other parties in interest in the bankruptcy process, (v) 

assist the Trustee in his investigation of the acts and conduct of the Debtors, including 

conducting witness interviews, and (vi) assist the Trustee in undertaking additional tasks that the 

Court may direct, to the extent those tasks are consistent with these delineated services. On 

February 9, 2012, the Court entered an order authorizing the retention of FSS.30 

C. Morrison & Foerster LLP 

On January 23, 2012, the Trustee filed an application to retain Morrison & Foerster LLP 

(“MoFo”) as general bankruptcy counsel to the Trustee, nunc pro tunc to November 28, 2011.31 

As general bankruptcy counsel, MoFo is responsible for (i) advising the Trustee with respect to 

 

27 Docket No. 610. 

28 Docket No. 618. 

29 Docket No. 388. 

30 Docket No. 437. 

31 Docket No. 391. 

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his powers and duties as Trustee and in the continued management and operation of the 

businesses and properties of the Debtors, (ii) attending meetings and negotiating with creditors 

and parties in interest, (iii) advising the Trustee in connection with any sale of assets in the 

Chapter 11 Cases, (iv) taking all necessary action to protect and preserve the Debtors’ estates, 

including prosecuting actions on behalf of the Trustee and the Debtors, defending any action 

commenced against the Trustee or the Debtors, and representing the Debtors’ interests in 

negotiations concerning all litigation in which the Debtors are involved, including, but not 

limited to, objections to claims filed against the Debtors, (v) preparing all motions, applications, 

answers, orders, reports, and papers necessary to the administration of the Chapter 11 Cases, 

(vi) appearing before the Court, any appellate courts, and the U.S. Trustee, and protecting the 

interests of the Debtors before such courts and the U.S. Trustee, (vii) performing other necessary 

legal services to the Trustee in connection with the Chapter 11 Cases, including (a) analyzing the 

Debtors’ leases and executory contracts and the assumption or assignment thereof, (b) analyzing 

the validity of liens against the Debtors, and (c) advising on corporate, litigation, and other legal 

matters, and (viii) taking all steps necessary and appropriate to bring the Chapter 11 Cases to 

conclusion. On February 9, 2012, the Court entered an order authorizing the retention of 

MoFo.32

D. Pepper Hamilton LLP 

On January 23, 2012, the Trustee filed an application to retain Pepper Hamilton LLP 

(“Pepper”) as special counsel to the Trustee, nunc pro tunc to November 28, 2011,33 to provide 

services related to (i) tax issues, including tax audits and refunds, and tax issues involving 

 

32 Docket No. 440. 

33 Docket No. 385. 

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affiliates, employee benefit issues, and certain insurance matters affecting the Debtors’ estates, 

(ii) WARN Act litigation matters and insurance litigation related to insurance claims, defenses 

and indemnities, (iii) miscellaneous real estate issues involving leases, furniture, fixture and 

equipment relating to the Debtors’ relocation, and employment issues affecting the operation of 

the remaining business of the estate, and (iv) any matters as to which MoFo has a conflict 

involving JPM, BoA or UBS, A.G. and their affiliates. On February 9, 2012, the Court entered 

an order authorizing the retention of Pepper.34

E. Covington & Burling LLP 

On March 27, 2012, the Trustee filed an application to retain Covington & Burling LLP 

(“Covington”) as special insurance counsel to the Trustee, nunc pro tunc to November 28, 

2011,35 to (i) provide legal analysis and advice concerning the Trustee’s rights and obligations 

with respect to the captive insurance subsidiary MFG Assurance Company Limited (“MFGA”), 

and policies issued to the Debtors by MFGA, (ii) review claims asserted under outstanding 

insurance policies and insurers’ responses to such claims, and advise the Trustee with respect to 

such claims, (iii) represent the Trustee in the Chapter 11 Cases with respect to matters involving 

the scope or availability of insurance coverage or entitlement to proceeds under the policies, and 

(iv) confer with, and assist when appropriate, the Trustee’s bankruptcy counsel concerning 

insurance coverage issues within the scope of Covington’s special expertise, and pursue potential 

claims for indemnification or reimbursement under such policies on behalf of the Trustee. On 

April 12, 2012, the Court entered an order authorizing the retention of Covington.36

 

34 Docket No. 441. 

35 Docket No. 597. 

36 Docket No. 627. 

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SUBSEQUENT CHAPTER 11 FILINGS

I. MF GLOBAL CAPITAL LLC, MF GLOBAL FX CLEAR LLC, MF GLOBAL 

MARKET SERVICES LLC, AND MF GLOBAL HOLDINGS USA INC. 

A. Petition Date and First Day Motions

The commencement of the Chapter 11 Cases of Holdings Ltd. and FinCo severely 

impacted certain of their U.S. affiliates. Since the October Petition Date, the Debtors have been 

discontinuing their operations and winding down their former businesses. 

To avoid the depletion of assets with no attendant benefit, the Unregulated Debtors filed 

voluntary petitions under chapter 11 of the Bankruptcy Code on December 19, 2011 (the 

“December Petition Date”). 

To facilitate the ongoing orderly wind-down of the other Debtors and their non-debtor 

affiliates, Holdings USA filed a voluntary petition under chapter 11 of the Bankruptcy Code on 

March 2, 2012 (the “March Petition Date”). 

The Trustee filed the following first day motions on behalf of the Subsequent Debtors to 

ease their transition to chapter 11 and cause minimum interruption or disruption to their 

businesses or loss of productivity or value. 

1. Joint Administration. 

The Trustee requested joint administration of the Chapter 11 Cases of the Subsequent 

Debtors with the jointly administered Chapter 11 Cases of the Initial Debtors to reduce costs and 

facilitate the administrative process by avoiding the need for duplicative notices, applications, 

and orders. On December 21, 2011 and March 6, 2012, the Court entered orders granting joint 

administration of the Initial Debtors’ and the Subsequent Debtors’ cases.37 

 

37 Docket Nos. 298, 528. 

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2. Application of Certain Orders to the Subsequent Debtors. 

On each of the December Petition Date and the March Petition Date, the Trustee 

requested entry of an order making certain of the orders entered in the Chapter 11 Cases of the 

Initial Debtors applicable to the Subsequent Debtors to avoid unnecessary duplication and 

expenses to the Subsequent Debtors and their estates.38 These orders included and/or involved 

the appointment of the Trustee as the chapter 11 trustee of each of the estates, the retention of the 

professionals discussed above for each of the estates, and various other motions filed in the 

Initial Debtors’ cases. On December 23, 2011 and March 7, 2012, the Court entered orders 

declaring these previous orders to be applicable to the Subsequent Debtors.39

3. Cash Management, Business Forms, and Intercompany Transfers. 

The Subsequent Debtors requested (i) a waiver of the requirement in the U.S. Trustee 

Guidelines that pre-petition bank accounts be closed and new post-petition bank accounts be 

opened, (ii) authority to maintain cash management systems, (iii) authority to continue to use all 

business forms existing immediately prior to the December and March Petition Dates, without 

reference to the Subsequent Debtors’ status as debtors in possession, provided that the 

Subsequent Debtors would use their reasonable best efforts to refer to their status as debtors in 

possession on all checks issued after the commencement of the Subsequent Debtors’ Chapter 11 

Cases and on other physical business forms after the Subsequent Debtors’ existing stock was 

exhausted, and (iv) authority to continue intercompany transactions among the Subsequent 

Debtors and accord superpriority status to all post-petition intercompany claims. The Court 

entered various interim orders and final orders authorizing the Subsequent Debtors to continue 

 

38 Docket Nos. 293, 509. 

39 Docket Nos. 303, 534. 

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using their existing bank accounts, cash management system and business forms, and to continue 

intercompany transactions among the Subsequent Debtors, according superpriority status to all 

post-petition intercompany claims.40

4. Employee Compensation, Expense Reimbursement, 

and Withholding and Payroll-Related Taxes. 

The Trustee determined that the Subsequent Debtors had incurred certain Pre-petition 

Employee Obligations (as defined below) that remained unpaid as of the December Petition 

Date. To minimize the personal hardship on the employees, and to maintain the employees’ 

morale during the Chapter 11 Cases, the Trustee requested: 

(i) authority to pay and honor various pre-petition employeerelated obligations of the Subsequent Debtors (collectively, the 

“Pre-Petition Employee Obligations”) to or for the benefit of 

their employees, for compensation and expense reimbursements 

under all plans, programs and policies maintained by the 

Subsequent Debtors prior to the December and March Petition 

Dates (the “Benefit Programs”);41

(ii) confirmation that the Trustee is permitted, but not required, to 

pay any and all local, state, and federal withholding and payrollrelated taxes relating to pre-petition periods, whether withheld 

from employees’ wages or paid directly by the Trustee, to the 

applicable governmental authorities; 

(iii) confirmation that the Trustee is permitted to pay to third 

parties any and all amounts deducted from employee paychecks for 

payments on behalf of employees for garnishments, support 

payments, tax levies, bankruptcy payments, savings programs, and 

other similar programs; 

(iv) an order directing all banks to honor pre-petition checks, ACH 

debits, draw-downs, or other forms of funds transfers and 

 

40 Docket Nos. 269, 378, 529, 625. 

41 These Benefits Programs include, without limitation, plans, programs, policies and agreements providing for (i) 

wages, salaries, contractual compensation, and other accrued or incurred compensation; (ii) workers’ compensation 

obligations; (iii) employee health benefits; and (iv) retirement benefits. The Trustee stated that no individual 

employee was to receive payment in excess of $11,725 for pre-petition amounts owed. 

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disbursements for payment of the Subsequent Debtors’ PrePetition Employee Obligations; 

(v) confirmation that the Trustee is permitted to take the necessary 

administrative actions to cause the 401(k) plan administrator or 

other benefits administrators, to the extent necessary, to terminate 

the 401(k) plan and other unnecessary benefits plans and/or 

programs; and 

(vi) authority to continue the post-petition payroll processing and 

administration of any Benefit Programs and Pre-Petition Employee 

Obligations that are administered or paid through a third-party 

administrator or provider, and pay any pre-petition claims of such 

administrators in the ordinary course of business. 

The Court entered several interim and final orders granting this relief.42 

B. Appointment of Chapter 11 Trustee 

On December 23, 2011, the Trustee was appointed as chapter 11 trustee of the estates of 

the Unregulated Debtors.43 This appointment was approved by the Court and accepted by the 

Trustee on December 27, 2011.44 

On March 8, 2012, the Trustee was appointed as chapter 11 trustee of the estate of 

Holdings USA.45 This appointment was approved by the Court on March 8, 2012 and accepted 

by the Trustee on March 12, 2012.46

 

42 Docket Nos. 297, 551, 576, 626. 

43 Docket No. 304. 

44 Docket No. 306, 307. 

45 Docket No. 546. 

46 Docket Nos. 548, 557. 

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C. Brief Description of the Businesses 

1. Capital. 

Capital is a New York limited liability company that provided foreign exchange, prime 

brokerage, and energy and credit default swaps. 

2. FX Clear. 

FX Clear is a New York limited liability company that provided foreign exchange 

execution and clearing services. 

3. Market Services. 

Market Services is a New York limited liability company that entered into matched 

principal trading of energy and agricultural products.

4. Holdings USA. 

Holdings USA is a New York corporation that provided administrative services to 

Holdings Ltd. and its U.S. subsidiaries.

DEBTORS’ OPERATIONS

I. DESCRIPTION OF GLOBAL OPERATIONS 

Prior to the October Petition Date, the MF Global Group, through its regulated and 

unregulated B/Ds and FCMs, was one of the world’s leading brokers in markets for commodities 

and listed derivatives. The MF Global Group provided access to more than seventy exchanges 

globally and was a leader by volume on many of the world’s largest derivative exchanges. The 

MF Global Group also was an active broker-dealer in markets for commodities, fixed income 

securities, equities, and foreign exchange. 

The MF Global Group was headquartered in the United States and had operations in, 

among other countries, the United Kingdom, Australia, Singapore, India, Canada, Hong Kong, 

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Japan and Taiwan. A copy of the MF Global Group’s organizational chart is annexed hereto as 

Exhibit B. The MF Global Group’s priority was to serve the needs of its diversified global client 

base, which included a wide range of institutional asset managers and hedge funds, professional 

traders, corporations, sovereign entities, and financial institutions. The MF Global Group also 

offered a range of services for individual traders and introducing brokers. 

The MF Global Group derived revenues from three main sources: (i) commissions 

generated from execution and clearing services; (ii) principal transactions revenue, generated 

both from client facilitation and proprietary activities; and (iii) net interest income from cash 

balances in client accounts maintained to meet margin requirements, as well as interest related to 

the MF Global Group’s collateralized financing arrangements and principal transactions 

activities. For fiscal year 2011, the MF Global Group generated total revenues of approximately 

$2.2 billion, revenues net of interest and transaction-based expenses of approximately $1.1 

billion, and incurred a net loss of $81.2 million. 

II. U.S. DEBTORS 

A. Attrition of Employees. 

Prior to the October Petition Date, the MF Global Group employed approximately 2,870 

employees worldwide, with approximately 1,300 employees in the United States. 

Approximately 250 of the U.S. employees were employed by the Debtors, while the remaining 

U.S.-based employees worked for MFGI. In the period immediately following the 

commencement of the Initial Debtors’ Chapter 11 Cases, however, the Debtors began the rapid 

wind-down of their former operations, quickly reducing employee headcount and other costs and 

taking additional actions to preserve the assets of their estates for the benefit of stakeholders. 

Holdings Ltd. has been able to retain its President, Chief Financial Officer and General Counsel, 

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who have remained to assist the Trustee with the wind-down of the Debtors’ estates. By 

December 2011, the Debtors had 30 other employees remaining as a result of the headcount 

reductions. 

Since December 2011, 17 employees have left the Debtors’ employment to pursue other 

opportunities. The loss of these employees had a considerable negative impact on the Debtors. 

As time passes, employees continue to leave the Debtors in favor of new opportunities and 

greater job security rather than assist the Debtors in the wind-down of their affairs. 

The remaining employees perform a variety of critical functions necessary for an orderly 

wind-down, a successful chapter 11 liquidation process, and compliance with the various 

obligations required under the Bankruptcy Code, the Bankruptcy Rules, the Local Rules and the 

Internal Revenue Code. The remaining employees are vital to the operations of the Debtors and 

implementation of the orderly wind-down during the pendency of the Chapter 11 Cases. The 

remaining employees’ positions fall into the following descriptions: 

• Finance / General Accounting 

• Cash Management 

• Tax 

• Accounting Systems 

• Information Technology 

• Legal / Insurance 

• Transactional Finance 

• Restructuring Communications 

The remaining employees have essential knowledge and skills required to assist with the 

efficient and effective wind-down the Debtors’ estates. This includes, but is not limited to, 

knowledge of investment positions to be unwound to maximize value to the estates; knowledge 

of historical financial and tax reporting and cash management systems; knowledge of 

intercompany relationships and receivables and payables balances; knowledge of complex legal 

structures and U.S. tax filing requirements; familiarity with important insurance issues affecting 

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the Debtors; and knowledge of information technology infrastructure and systems application 

needs. The remaining employees’ knowledge and unique skill sets will enable the Trustee to 

complete the many tasks mandated by the Bankruptcy Code or that are otherwise necessary in 

the wind-down of the Debtors’ operations and the liquidation of their assets. 

The remaining core group of employees also have assumed numerous finance and 

accounting functions previously provided by employees of MFGI, including certain cash 

management, payroll and accounts payable accounting and processing for the Debtors. These 

employees also have assisted with federal and state tax compliance and bankruptcy 

administration responsibilities, including the preparation of monthly operating reports and the 

preparation of the Schedules for filing in the Debtors’ cases. Moreover, using the Debtors’ 

analysis of intercompany balances as of October 31, 2011, which was made possible through the 

work and knowledge of the remaining employees, as detailed below, the Trustee is actively 

pursuing recoveries against former affiliates and has filed or is in the process of filing numerous 

and substantial claims against certain of the Debtors’ domestic and foreign affiliates that are in 

insolvency proceedings in their local jurisdictions. These employees have shared a wealth of 

knowledge, which has allowed the Trustee and his professionals to organize and understand 

quickly the information necessary to create and execute strategies for the orderly liquidation of 

these estates. This would not have been possible, or certainly could not have been accomplished 

as quickly or as cost-effectively, without the institutional knowledge of and assistance from the 

Debtors’ employees on a daily basis. 

B. Real Estate and Leases. 

Prior to the commencement of the Chapter 11 Cases, the Debtors maintained offices at 

717 Fifth Avenue, New York, New York 10022 (the related lease is referred to herein 

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as the “717 Lease”). Due to their changed financial circumstances and increasing employee 

attrition rate, the Debtors determined that they no longer needed to maintain an office of that 

size. In November 2011, the Debtors terminated the 717 Lease and moved into temporary office 

space located at 1350 Avenue of the Americas, New York, New York 10019. As of March 1, 

2012, the Debtors entered into a lease to maintain their offices at 142 West 57th Street, New 

York, New York 10019 (the “57th Street Lease”). The 57th Street Lease terminates on June 29, 

2013. By terminating the 717 Lease and entering into the 57th Street Lease, the Debtors have 

reduced their rent obligations by approximately $9 million on an annual basis. 

C. Pre-petition Debt Facilities 

1. Liquidity Facility. 

Prior to the October Petition Date, Holdings Ltd. and FinCo (in this capacity, the 

“Borrowers”)47 entered into that certain five-year revolving credit facility dated as of June 15, 

2007 (as amended, supplemented or otherwise modified from time to time, the “Liquidity 

Facility”) with JPM, as administrative agent, and the several lenders from time to time that are 

parties thereto (collectively, the “Liquidity Facility Lenders”). On June 29, 2010, the Liquidity 

Facility was amended (i) to permit Holdings Ltd., in addition to certain of its subsidiaries, to 

borrow funds under the Liquidity Facility and (ii) to extend the lending commitments of certain 

of the Liquidity Facility Lenders by two years, from June 15, 2012 to June 15, 2014. Under the 

Liquidity Facility, the Liquidity Facility Lenders made available to the Borrowers the aggregate 

principal amount of approximately $1.2 billion, $1.172 billion of which was drawn as of the 

October Petition Date. 

 

47 Holdings Ltd. was named as one of the Borrowers. Holdings Ltd. changed its jurisdiction of incorporation from 

Bermuda to the State of Delaware and has continued its existence as a corporation organized under the laws of the 

State of Delaware under the name of MF Global Holdings Ltd. 

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2. Secured Facility to MFGI. 

On June 29, 2011, MFGI entered into a $300 million 364-day secured revolving credit 

facility (the “MFGI Secured Facility”) with a syndicate of lenders. The Trustee understands 

that, although the MFGI Secured Facility is not fully drawn, MFGI borrowed a substantial 

amount on the facility as of the October Petition Date. The SIPA Trustee has not provided a 

consistent answer regarding the exact amount outstanding on the MFGI Secured Facility as of 

the October Petition Date. 

JPM is the administrative agent under the MFGI Secured Facility. The MFGI Secured 

Facility is secured by eligible collateral that was held by MFGI. The Trustee believes that the 

borrowings under the MFGI Secured Facility were over-collateralized by securities pledged by 

MFGI. However, the SIPA Trustee has not provided any further details to allow the Trustee to 

ascertain the level of overcollateralization. Holdings Ltd. and FinCo provided unsecured 

guarantees of MFGI’s obligations under the facility. 

3. Unsecured Convertible Notes. 

Holdings Ltd. owes approximately $287.5 million in unsecured debt under certain 

1.875% Convertible Senior Notes due 2016 (the “1.875% Convertible Notes”). The 1.875% 

Convertible Notes mature on February 1, 2016 and are convertible at the option of the holders 

prior to August 1, 2015 upon the occurrence of certain events relating to the price of Holdings 

Ltd.’s common stock or various corporate events. 

Holdings Ltd. also has outstanding approximately $78.6 million in aggregate principal 

amount of 9.00% Convertible Senior Notes due 2038 (the “9% Convertible Notes”). The 9% 

Convertible Notes mature on June 20, 2038 and are convertible at the option of the holders at any 

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time prior to the maturity date. Upon conversion, Holdings Ltd. must pay or deliver cash, 

common stock or a combination thereof. 

In July 2011, Holdings Ltd. raised $325 million in aggregate principal amount of 3.375% 

Convertible Senior Notes due 2018 (the “3.375% Convertible Notes,” and, together with the 

1.875% Convertible Notes and the 9% Convertible Notes, the “Convertible Notes”). In August 

2011, Holdings Ltd. also launched and priced its first senior unsecured debt offering, issuing 

$325,000,000 in five-year 6.25% senior notes (the “Senior Notes”). Holdings Ltd. used a 

portion of the net proceeds from these offerings to repurchase a portion of its existing 9% 

Convertible Notes, repaid a portion of its outstanding permanent indebtedness under the 

Liquidity Facility, and used the remainder for general corporate purposes. Wilmington Trust, 

N.A. is the indenture trustee for each of the Convertible Notes and the Senior Notes. 

D. Equity Interests 

As of June 30, 2011, there were 1,500,000 shares of Series A Preferred Stock in Holdings 

Ltd. issued and outstanding to J.C. Flowers. Also as of June 30, 2011, 403,550 shares of Series 

B Preferred Stock were outstanding. 

E. Use of Cash Collateral 

In the period immediately following the commencement of the Initial Debtors’ Chapter 

11 Cases, the Initial Debtors began the rapid wind-down of their former operations, swiftly 

reducing employee headcount and other costs and taking additional actions to preserve the assets 

of their estates for the benefit of stakeholders. The Initial Debtors simultaneously focused on 

obtaining debtor in possession financing to fund an orderly wind-down of their estates. Despite 

their best efforts and extensive negotiations with potential lenders, the Debtors were unable to 

secure debtor in possession financing. The Initial Debtors did secure an interim Cash Collateral 

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agreement through a stipulated order with JPM, the administrative agent to the lenders under the 

Liquidity Facility, which, along with the recovery of unencumbered, liquid assets, provided the 

Initial Debtors with $8 million and allowed them to continue wind-down operations. 

Immediately after the appointment of the Trustee, the Initial Debtors entered into negotiations 

with JPM to increase the available Cash Collateral for use by the Initial Debtors to fund the 

Debtors’ operations. Thereafter, the Initial Debtors reached an agreement with JPM for the 

consensual use of approximately $21.3 million in Cash Collateral through and until September 

30, 2012. The Court approved the terms of the stipulation and entered a final order on December 

14, 2012 (the “Final Cash Collateral Order”).48 At the time of the Final Cash Collateral Order, 

the Initial Debtors had recovered sufficient funds to offset the Cash Collateral previously used. 

As a part of the Court’s written opinion issued with the Final Cash Collateral Order, the 

Court ordered the Trustee to conduct an investigation into whether funds of the customers of 

MFGI that should have been segregated pursuant to CFTC and SEC rules had been commingled 

with the Debtors’ Cash Collateral in the JPM Cash Collateral account. After the Trustee 

conducted an investigation, the Trustee issued his report on February 16, 2012 that determined 

that none of the funds in the JPM account were commingled funds.49 The SIPA Trustee (as 

defined below) did not disagree with the conclusion reached by the Trustee’s investigation. 

MF GLOBAL INC.

On the October Petition Date, the Securities Investor Protection Corporation (“SIPC”) 

began the orderly wind-down of MFGI when it filed a complaint in the United States District 

Court for the Southern District of New York (the “District Court”) for the liquidation of 

 

48 Docket Nos. 272, 275. 

49 Docket No. 451. 

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MFGI.50 At that time, SIPC moved for an order determining that the customers of MFGI were in 

need of the protections afforded under SIPA.51 The District Court granted the order (the “SIPA 

Proceeding”)52 and thereafter transferred the SIPA Proceeding to this Court. The case caption 

and case name were changed to reflect its status as a liquidation proceeding in this Court. The 

case is now known as In re MF Global Inc., Case No. 11-2790 (MG) SIPA.53

I. SIPA TRUSTEE AND PROFESSIONALS 

SIPC appointed James W. Giddens (the “SIPA Trustee”) as trustee for the liquidation of 

MFGI. The SIPA Trustee then hired his firm, Hughes Hubbard and Reed, LLP as counsel. The 

SIPA Trustee also has retained Ernst & Young and Deloitte as consultants and forensic 

accountants to aid him in investigating the details of the collapse of MFGI, and the impact of the 

MF Global Group’s collapse on MFGI, as well as determining the claims customers and 

creditors have against MFGI, and, ultimately, recovering and distributing MFGI’s assets to 

customers and creditors pursuant to the priority scheme established by statute. To assist the 

SIPA Trustee with matters in Europe, he retained Slaughter and May as U.K. counsel. Blake, 

Cassels & Graydon LLP was retained as Canadian counsel. In addition, the SIPA Trustee 

retained Haynes and Boone, LLP as conflicts counsel. 

II. SIPA TRUSTEE’S DUTIES UNDER SIPA 

Pursuant to 15 U.S.C. § 78fff-1, the SIPA Trustee has the same fiduciary duties as a 

chapter 7 trustee, as long as those duties do not conflict with SIPA. The statute states: “[t]o the 

extent consistent with the provisions of this chapter or as otherwise ordered by the court, a 

 

50 In re MFGI Inc., Case No. 11-02790 (MG) SIPA Docket No. 1. 

51 Id. 

52 Id. 

53 In re MFGI Inc., Case No. 11-02790 (MG) SIPA Docket No. 2. 

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trustee shall be subject to the same duties as a trustee in a case under chapter 7 of title 11.” 

Chapter 7 of the Bankruptcy Code requires the SIPA Trustee to, among other things, “furnish 

such information concerning the estate and estate administration as is requested by a party in 

interest.” 11 U.S.C. § 704(a)(7). 

Courts reviewing the interplay between SIPA and the Bankruptcy Code have determined 

that a SIPA trustee is bound to serve all of the creditors of an estate, not one particular subset 

over another. Indeed, these courts determined that a chapter 7 trustee’s primary duty is not to 

any individual creditor or even any particular class of creditors, but to the estate as a whole. 

Kusch v. Mishkin, et al. (In re Adler, Coleman Clearing Corp.), Case No. 95-08203(JLG), Adv. 

Proc. No. 95-9248(A), 1998 Bankr. LEXIS 1076, *49 (Bankr. S.D.N.Y. Aug. 24, 1998) (the 

court, in dismissing a breach of fiduciary duty claim against a SIPA trustee, stated that the 

trustee's duties to the estate prevail over the interests of any single customer). The Adler, 

Coleman court explained, in dicta, that to find that a SIPA trustee owes a greater fiduciary duty 

to customers than to general creditors would be “antithetical to the fundamental principles 

underlying our bankruptcy laws.” Id.; see also Germain v. Connecticut National Bank, 988 F.2d 

1323, 1330 n.7 (2d Cir. 1993) (stating that a chapter 7 trustee “is an officer of the court and owes 

a fiduciary duty both to the debtor and to the creditors as a group.”). 

The Debtors are (i) a securities customer of MFGI under SIPA regulations (owed 

approximately $556 million), (ii) a futures customer of MFGI under the CFTC regulations (owed 

approximately $90 million), (iii) both a secured and unsecured creditor of MFGI (owed 

approximately $1.667 billion), and (iv) the 100% equity holder of MFGI. The Debtors are the 

single largest creditor of MFGI. The Debtors’ estates are highly dependent on the SIPA estate 

not only for information, but for the return of value to their creditors, who infused the SIPA 

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estate with in excess of $950 million in the month of October 2011 alone and more than $2 

billion overall. 

III. DESCRIPTION OF MFGI BUSINESS/ROLE IN GLOBAL OPERATIONS 

MFGI was a wholly-owned subsidiary of Holdings USA and an indirect subsidiary of 

Holdings Ltd. MFGI provided brokerage services to customers and affiliates on United States 

securities and commodity futures exchanges and on overseas exchanges through affiliates or 

independent correspondent clearing brokers. MFGI also was engaged in principal and 

proprietary54 trading in U.S government and corporate securities, futures, and purchase and resale 

agreements, as well as stock/bond borrow and stock/bond loan activities.55

MFGI is registered with the SEC as a securities B/D. As a securities B/D, MFGI was a 

member of several regulatory organizations, including FINRA, the Chicago Board Options 

Exchange (the “CBOE”), the Depository Trust Clearing Corporation, the National Securities 

Clearing Corporation, and the Fixed Income Clearing Corporation. The CBOE was the 

designated examining authority of the MFGI B/D’s securities related activities. 

MFGI also is registered with the CFTC as a FCM. As a FCM, MFGI was a member of 

the National Futures Association, an industry self-regulatory agency. Additionally, MFGI was a 

member of the CME, the Chicago Board of Trade, the New York Mercantile Exchange, the 

Intercontinental Exchange, the Kansas City Board of Trade, and the Minneapolis Grain 

Exchange. The CME was the MFGI FCM’s designated self-regulatory organization. 

Beginning in February 2011, MFGI was one of 20 “primary dealers” to the Federal 

Reserve Bank of New York (the “Federal Reserve”). Designation as a “primary dealer” 

 

54 See Annex 1 ¶ 1. 

55 See Annex 1 ¶ 7 for an explanation of stock/bond borrow and stock/bond loan activities. 

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enabled MFGI to serve as counterparty to the Federal Reserve in open-market operations, 

participate directly in U.S Treasury auctions, and provide analysis and market intelligence to the 

Federal Reserve’s trading desks. 

A. Repos-To-Maturity 

In or around September 2010, the MF Global Group began aggressively acquiring long 

positions in European sovereign debt securities in MFGI as part of its proprietary trading 

activities. MFGUK acted as agent for the acquisitions, including the repurchase transactions 

(“Repos”) to finance the purchases, and also cleared the trades since it was the only member of 

the MF Global Group that was a member of the relevant clearinghouses, such as the 

LCH.Clearnet Ltd. (in London) or LCH.Clearnet SA (in Paris) (collectively, “LCH Clearnet”) 

or Eurex (together with LCH Clearnet, the “Exchanges”). Therefore, MFGUK served as the 

“counterparty” to MFGI in these transactions. 

To finance the MF Global Group’s sovereign debt purchases, MFGUK would enter into 

back-to-back Repo transactions consisting of two legs -- a Repo leg with third parties to finance 

the acquisition and a reverse Repo leg, with MFGI to finance MFGI’s long position.56 By 

entering into the two offsetting back-to-back Repos, MFGUK was “flat” to the market and did 

not bear any of the associated risk that may have resulted from fluctuations in the market value 

of the European sovereign debt positions. As a result, the economic risk of ownership was 

transferred from MFGUK to MFGI. 

Under the terms of the Repos with third parties, MFGUK agreed to sell to the third party 

(and the third party agreed to purchase) European sovereign debt securities while MFGUK 

simultaneously agreed to repurchase those securities from the third party at an agreed upon 

 

56 A repurchase agreement, from the viewpoint of the party obtaining financing, is referred to as a Repo and a 

reverse Repo is from the perspective of the party providing financing. 

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repurchase price, on a date falling immediately prior to the maturity date of the securities.57 

MFGUK and the third parties entered into the Repos either on a bilateral basis or cleared the 

transactions through the Exchanges. In the cases where an Exchange cleared the Repo, the 

Exchange would become the counterparty to the original parties under the Repo. MFGUK 

would then look to the Exchange, and not the financing counterparty, to satisfy the financing 

counterparty’s obligations under the Repo trade (i.e., delivery of securities to MFGUK upon 

maturity of Repo against payment by MFGUK of Repo financing).58 MFGUK posted the initial 

margin with the Exchanges to finance the leveraged long positions in European sovereign debt. 

Under the terms of MFGUK’s reverse Repo with MFGI, MFGI agreed to sell to MFGUK 

various European sovereign debt securities, while MFGI simultaneously agreed to repurchase the 

securities from MFGUK at an agreed upon repurchase price, on a date falling immediately prior 

to the maturity date of those securities. The reverse Repo transactions were governed by the 

master securities sale and repurchase agreement previously entered into between MFGI and 

MFGUK, dated July 19, 2004 (substantially in the form of the Global Master Repurchase 

Agreement published by the International Capital Market Association) (“GMRA”) and the 

confirmations that provided the details for each of the individual trades entered into thereunder. 

Under the terms of the reverse Repos, MFGI would post initial margin with MFGUK to finance 

the leveraged long positions in European sovereign debt. MFGI’s purchase of the sovereign debt 

positions, with the associated financing from MFGUK, resulted in the benefits and risks of 

economic ownership shifting from MFGUK to MFGI. 

 

57 Repo transactions where the maturity date of the financing is within two days of the maturity of the underlying 

security are commonly referred to as RTMs. See Annex 1 ¶ 3 for a more detailed explanation of RTM transactions. 

58 LCH Clearnet acted as a clearing house (or exchange) and was essentially an intermediary that helped mitigate 

counterparty credit risk. LCH Clearnet played a similar role as that of the Fixed Income Clearing Corporation in the 

United States. 

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At the time the MF Global Group began acquiring the European sovereign debt positions, 

each of the sovereign debt issuances was rated as investment grade (Moody’s rated A or better). 

MFGUK, therefore, was required by the clearinghouses or third parties who were the 

counterparties to their trades to post only a small initial margin payment -- as low as 3% of the 

face amount of the securities to be financed through the RTM -- and in turn required only this 

amount from MFGI. This allowed the MF Global Group to build a highly leveraged portfolio. 

MFGI met its initial margin obligations to MFGUK and subsequent variation margin calls as 

required by MFGUK using MFGI’s own liquidity as well as intercompany loans provided by 

FinCo. The below diagram visualizes the end-to-end structure of the Repo to Maturity 

transactions prior to August 2011. 

End-to-End Structure of RTM Transactions59

Under the terms of a Repo transaction, the financing counterparty (e.g., MFGUK) 

generally has the right to require the borrower under the Repo (e.g., MFGI) to post additional 

 

59 See Annex 1 ¶ 8 for an explanation of intercompany payable. 

MFGI MFGUK Exchanges 

Margin 

Intercompany 

Payable Long Position 

Margin 

Financing 

Counterparties 

Financing 

Provided 

FinCo

Cash 

Intercompany 

Payable 

Holdings 

Ltd. 

Intercompany 

Payable 

Cash 

Repo Liability 

Purchase of 

European Debt 

Positions 

Long Position Cash Securities

Repo Liability 

Collateral 

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cash or securities as collateral resulting from decreases in the market value of the collateral 

underlying the Repo transaction. To accomplish this, the financing counterparty would issue a 

margin call. Accordingly, financing the acquisition of securities through the use of Repos had 

the potential to create a significant risk to the liquidity of MFGI and the MF Global Group as a 

whole.60 A summary of the MF Global Group’s net sovereign debt holdings is described in the 

below diagram. 

The MF Global Group’s RTM Summary as of 9/30/2011

As the value of the MF Global Group’s European sovereign debt positions deteriorated in 

the Summer and Fall of 2011, MFGUK -- and consequently MFGI (and later FinCo) -- were 

required to post additional variation margin. In late October 2011, as the MF Global Group’s 

credit ratings were downgraded, the Exchanges also required additional initial margin. MFGUK, 

as counterparty to the Exchanges, was responsible for meeting the Exchanges’ margin calls, 

which at certain points were issued on a daily basis. MFGUK would then issue margin calls to 

 

60 See Annex 1 ¶ 3 for an explanation of the potential for liquidity risk posed by these transactions. 

Italy (1) Spain (1) Belgium Portugal Ireland Net Total

Net size ($ in millions) $3,213 $1,111 $603 $997 $368 $6,292

% of total portfolio 51% 18% 10% 16% 6% 100%

Weighted Avg. Maturity Dec 2012 Oct 2012 Dec 2012 Mar 2012 Feb 2012 Oct 2012

of Long Positions

Maturity Schedule 6% - Mar 2012 12% - Apr 2012 100% - Dec 2012 3% - Oct 2011 18% - Nov 2011 5% - Nov 2011

3% - Aug 2012 61% - Oct 2012 36% - Nov 2011 82% - Mar 2012 7% - Mar 2012

91% - Dec 2012 27% - Dec 2012 61% - Jun 2012 3% - Apr 2012

7% - Jun 2012

2% - Aug 2012

15% - Oct 2012

61% - Dec 2012

(1) Includes France's short positions of $1.3 billion as proxy hedges, split equally between Italy and Spain.

Source: Second Fiscal Quarter 2012 Results Investor Presentation

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MFGI, which the Trustee believes were funded in whole or in part by loans from FinCo. As the 

Trustee understands it, MFGUK made one or more “house” margin calls to MFGI that were in 

excess of MFGUK’s margin requirements with the Exchanges in order to cover potential 

intraday liquidity risk on margin calls to MFGI and to satisfy MFGUK’s regulators. 

Two approaches taken to hedge the European sovereign debt portfolio and to limit the 

margin posting requirements therewith were: (i) MFGUK shorted $1.3 billion of French 

sovereign debt through the Exchanges as a proxy-hedge against its exposure to Italian and 

Spanish sovereign debt; and (ii) MFGUK entered into trades with counterparties, including 

overnight, short-term and medium-term reverse Repos that were cleared through the Exchanges 

to reduce margin requirements (“Margin Reduction Trades”) (with a back-to-back Repo 

transaction into MFGI).61 

B. The RRTM 

In order to ensure that MFGI was in compliance with its capital requirements as of 

August 24, 2011, in late August 2011 MFGI entered into “back-to-back” reverse repo-tomaturity (“RRTM”) transactions with FinCo for a portion of the RTM portfolio62 pursuant to a 

master repurchase agreement dated January 6, 2011 between MFGI and FinCo (the “FinCo 

MRA”) and the transaction confirmations thereunder. These trades effectively made FinCo the 

beneficial holder of €2.925 billion of Italian bonds. This strategy allowed the MF Global Group 

to transfer the economic benefits and risks from MFGI (a regulated entity) to FinCo (an 

unregulated entity), and thereby reduce MFGI’s regulatory capital requirements. The below 

diagram shows the RRTM transactions between MFGI and FinCo. 

 

61 See Annex 1 at ¶ 4 for an explanation of Margin Reduction Trades. 

62 See Annex 1 at ¶ 3 for an explanation of RRTMs. 

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MFGI RRTM Transaction

The SIPA Trustee has indicated that the RRTM was booked flat, meaning that the 

financing was equal to the underlying value of the securities position. The Trustee cannot verify 

that this information is correct because, despite the Trustee’s request for all documents -- 

including confirmations issued under the master repurchase agreement between FinCo and 

MFGI, detailing the terms of the RRTM transactions -- the SIPA Trustee has yet to provide any 

such documents. 

FinCo 

MFGI MFGUK 

Exchanges 

Margin 

Margin 

Margin 

Long 

Position 

Long Position 

InterCompany Payable 

(Customer Account) 

Repo Liability 

Repo 

 Liability 

Repo 

 Liability 

InterCompany 

 Payable 

Long 

Position 

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C. Pre-Petition Funding 

The relationship between the Debtors and MFGI can be reduced to three distinct types of 

intercompany activities: (i) financing; (ii) trading and (iii) general corporate administration. 

1. Financing.

a. Subordinated Debt Financing. 

Holdings USA and FinCo provided a total of $600 million in subordinated debt financing 

(the “Sub-Debt”) to MFGI prior to the October Petition Date. The Sub-Debt was memorialized 

in multiple loan agreements. The subordinated notes carried interest at the rate of 30-day LIBOR 

plus 500 basis points (5%). A summary of the outstanding loan obligations as of the October 

Petition Date is included in the table below. 

Lender 

CME/CBOE Loan 

Number 

Effective 

Date Maturity Date Amount 

Holdings USA 287-120706-0001 12/31/2007 6/28/2013 $65,000,000

Holdings USA 287-120707-0001 12/31/2007 9/30/2013 $65,000,000

FinCo 287-120701-0001 12/31/2007 expired $0

FinCo 287-120702-0001 12/31/2007 6/29/2012 $130,000,000

FinCo 287-120703-0001 12/31/2007 3/30/2012 $130,000,000

FinCo 287-120704-0001 12/31/2007 expired $0

FinCo 287-120705-0001 12/31/2007 9/30/2011 $50,000,000

FinCo 287-081001-0001 8/9/2010 7/31/2013 $0

FinCo 287-081001-002 8/10/2010 7/31/2013 $160,000,000

Total $600,000,000

b. Intercompany Loans. 

FinCo generally acted as the financing arm for the U.S. operations of the MF Global 

Group. FinCo provided substantial amounts of working capital financing to MFGI. In addition 

to the Sub-Debt, FinCo provided an additional $991 million in intercompany funding to MFGI 

(the “Intercompany Loans”). Substantially all of the Intercompany Loans ($875 million) were 

funded during October 2011. Again, although the Trustee has requested information relating to 

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the use of these funds from the SIPA Trustee on multiple occasions, the Trustee only recently 

received the MFGI bank account statements -- in raw data form -- and the Trustee still is 

awaiting information regarding the Securities and Futures accounts of MFGI. Therefore, the 

Trustee has limited access to information that would aid in determining the purposes of MFGI’s 

funding requests. The Trustee believes that a portion of the Intercompany Loans (approximately 

$233 million to $293 million) was used by MFGI to fund variation margin payments to MFGUK 

during the ten days prior to the October Petition Date. Below is a schedule detailing the margin 

calls from MFGUK to MFGI during that timeframe. 

Margin Statement 

c. Margin Financing. 

FinCo provided margin financing to certain MFGI customers. The purpose of this 

financing was to allow customers to acquire additional securities or futures positions. Generally, 

As at COB: 28-Oct-11 27-Oct-11 26-Oct-11 25-Oct-11 24-Oct-11 21-Oct-11 20-Oct-11 19-Oct-11 18-Oct-11 17-Oct-11

 454,624,390 495,975,763 410,963,534 277,302,875 278,049,205 277,679,686 273,604,300 273,939,212 275,899,318 

 182,811,558 199,344,353 185,592,415 188,277,470 182,979,874 174,800,604 173,978,422 167,180,609 151,003,397 

 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 

 23,280,469 23,219,740 

 665,716,417 723,539,856 601,555,949 470,580,345 466,029,079 457,480,289 452,582,722 446,119,821 431,902,715 

 604,003,047 663,925,523 492,732,015 464,694,118 457,962,898 452,795,960 451,731,735 430,943,455 430,892,493 

 61,713,370 59,614,333 108,823,934 5,886,227 8,066,181 4,684,329 850,987 15,176,366 1,010,222 

FX Rates 1 1 1 1 1 1 1 1 1 

 15,397,744 1,675,841 (2,975,361) (100,430) 823,043 n.a n.a n.a n.a

I.M. Breakdown 28-Oct-11 27-Oct-11 26-Oct-11 25-Oct-11 24-Oct-11 21-Oct-11 20-Oct-11 19-Oct-11 18-Oct-11 17-Oct-11

Eurex 122,303,820 101,486,439 97,908,521 98,729,580 98,761,993 98,676,172 97,341,174 97,377,072 98,066,691 

 318,916,812 324,580,597 285,469,981 159,129,290 159,848,240 159,182,204 156,221,795 156,784,797 157,247,059 

 22,282,810 37,345,178 10,991,748 11,094,572 11,087,738 11,063,861 11,256,792 10,946,410 11,734,066 

 11,938,329 11,746,169 16,593,284 8,349,433 8,351,233 8,757,449 8,784,540 8,830,933 8,851,501 

Total 495,975,763 454,624,390 410,963,534 277,302,875 278,049,205 277,679,686 273,604,300 273,939,212 275,899,318 

V.M. Breakdown

Eurex 13,764,761 9,717,223 17,035,399 16,877,226 17,107,177 16,480,844 16,371,063 19,123,032 15,418,817 

 69,275,628 92,250,980 69,053,086 69,733,482 68,393,188 66,916,000 67,042,082 61,412,708 50,992,502 

 106,431,756 93,551,632 98,390,637 100,548,637 95,296,346 89,594,614 88,843,948 87,174,875 87,285,593 

Bilateral (223,020) (2,613,049) 1,113,293 1,118,125 2,183,164 1,809,145 1,721,329 (530,005) (2,693,515) 

 182,811,558 199,344,353 185,592,415 188,277,470 182,979,874 174,800,604 173,978,422 167,180,609 151,003,397 

LCH Clearnet Ltd

LCH Clearnet SA

LCH Clearnet Ltd

Collateral received

Additional Collateral Required

Change attributable to movement in FX Rate

For Reference:

LCH Clearnet SA

 LCH SA fwd margin

Total Margin requirement

Margin Call Statement MF Global Inc - Collateral Financing Portfolio

Initial Margin Requirement

Variation Margin

Buffer margin for fx exposure

Increase coverage

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the documentation memorializing the financing terms provided that the customers of MFGI 

granted FinCo a security interest in the customer's securities and/or futures accounts and MFGI, 

as custodian of the securities and/or futures accounts, acknowledged FinCo’s security interest. 

The SIPA Trustee, however, made distributions to these margin customers irrespective of the 

FinCo security interest in the account. In certain instances, the SIPA Trustee actually disbursed 

more money to the margin borrowers than they were entitled to receive. The Trustee 

understands that this was a result of the SIPA Trustee calculating the net equity of the margin 

borrower’s account without taking into account any outstanding loan obligation to FinCo. As a 

result, the SIPA Trustee actually distributed the Debtors’ property to certain of the margin 

borrowers. The Trustee has sent letters to ten former customers of MFGI requesting that they 

repay the margin financing received from FinCo in the approximate aggregate amount of $36.9 

million. As of the filing of this Report, FinCo has not received any funds back from these 

customers. 

d. Repo Financing. 

(i) HTM Repo.

In or around June 2009, Holdings Ltd. began acquiring a portfolio of securities classified 

on its balance sheet for account purposes as hold-to-maturity (“HTM”)63 and financed the 

purchases with Repo financing provided by the MFGI B/D. Each Repo was governed by the 

master repurchase agreement dated as of May 19, 2009 between Holdings Ltd. and MFGI and 

the confirmations issued detailing the specific transaction details (the “Holdings Ltd. MRA”).64 

 

63 See Annex 1 ¶ 5 for an explanation of HTMs.

64 Although requested by the Trustee on multiple occasions, at this time, the Trustee has not received copies of 

any confirmations issued by the MFGI B/D under the Holdings Ltd. MRA detailing the salient terms of each HTM 

Repo financing transaction. 

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Initially, the FCM provided substantially all of the financing MFGI made available for 

the HTM portfolio. Later, the MFGI B/D diversified the financing of the HTM portfolio to 

include third party investors. The FCM was able to provide this financing because the HTM 

securities were eligible investments under CFTC Regulation 1.25 (“Regulation 1.25”).65 

Pursuant to authority under Section 4(c) of the Commodity Exchange Act, the CFTC established 

a list of permitted investments under Regulation 1.25 that, prior to the October Petition Date, 

included general obligations issued by any enterprise sponsored by the United States, bank 

certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign 

nation (but only to the extent that the FCM had balances in segregated accounts owed to its 

customers denominated in that country’s currency) and interests in money market mutual funds. 

In addition, a FCM could buy and sell permitted investments pursuant to resale or repurchase 

agreements, including Repos entered into with an affiliate and so-called “in-house” transactions, 

e.g., between the B/D and FCM businesses of the same legal entity. The Trustee understands 

that over time, the HTM portfolio was increasingly financed by third-party investors (as opposed 

to using FCM financing) via back-to-back Repo financing transactions entered into with 

counterparties by the MFGI B/D. 

As of October 25, 2011, the HTM portfolio consisted of government agency securities 

and corporate bonds (mainly issued by financial institutions) with a market value of $8.644 

billion (including accrued interest). The Repo financing associated with the HTM portfolio 

totaled $8.567 billion as of October 25, 2011. As a result, Holdings Ltd. had margin equity of 

$77 million in the Repo portfolio. The structuring of the HTM Repo is illustrated in the below 

diagram.

 

65 See 17 CFR § 1.25. 

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Hold To Maturity Repo

(1) FCM customers posted cash (i.e., margin) at the FCM to enable them to trade futures. 

(2) Holdings Ltd. purchased $8.6 billion (market value as of October 25, 2011) of Regulation 1.25-

eligible securities that formed the HTM portfolio from various third party counterparties. The 

purchase was made by the MFGI B/D side of the MFGI business on behalf of Holdings Ltd. 

Holdings Ltd. received economic ownership of the positions in exchange for initial margin and 

the posting of the securities back at MFGI as collateral. 

(3) The purchase of eligible securities was financed partially using FCM customer funds. The MFGI 

B/D entered into intra-company Repos with the FCM, whereby securities were posted as 

collateral in exchange for financing. The FCM retained physical possession of the securities. 

(4) The purchase of eligible securities also was financed partially by third parties. MFGI entered into 

repo transactions with third party repo counterparties, whereby securities were posted as 

collateral in exchange for financing. 

FinCo appears to have provided financing for some HTM positions. According to an October 28 

report provided by the SIPA Trustee, there appears to have been $10.3 million (par value) of 

HTM positions that were not financed by the third-parties (the “Street”) or with FCM funds and 

were instead financed through intercompany repos between MFGI and FinCo.

Holdings Ltd. •Economic owner of 

HTM positions 

MFGI 

B/D •Repo counterparty 

•Intermediary between 

FCM/Street and 

Holdings Ltd.

MFGI 

FCM •Physical possession 

and collateral interest 

in HTM securities 

Collateral 

(Securities) 

Long Securities 

Position 

Margin & 

Collateral 

(Securities) 

Financing 

Third Party Repo 

Counterparties 

Financing 

Collateral 

(Securities) 

FCM 

Customers 

Cash 

Purchase of 

Eligible 

Securities 

Cash 

Securities 

(1) 

(2) 

(2) 

(3) 

(4) 

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From October 25, 2011 until the October Petition Date, Holdings Ltd. undertook a 

massive liquidation of HTM positions with the goal of freeing up liquidity, during which time 

the HTM portfolio was reduced by about $7.2 billion to approximately $1.4 billion by October 

31, 2011. The Trustee has requested information from the SIPA Trustee regarding the close-out 

pricing for both the HTM Portfolio and the back-to-back Repo positions the MFGI B/D entered 

into with the FCM or third parties. By reconstructing the wind-down of the HTM portfolio, the 

Trustee can determine the losses resulting from the precipitous liquidation of the HTM portfolio. 

The Trustee requires this information to determine the HTM portfolio’s impact on the funding 

provided by FinCo to MFGI and the extent of the Debtors’ claims against MFGI. 

(ii) Box Repo 

FinCo entered into Repo financing transactions with the MFGI B/D (the “Box Repo”) 

where FinCo agreed to buy from the MFGI B/D various securities (the “Box Portfolio”), with a 

simultaneous agreement of the MFGI B/D to repurchase from FinCo those securities (or 

securities considered equivalent thereto) at a repurchase price the next day. This type of 

agreement is commonly referred to as an overnight Repo. The Box Repo transactions were 

governed by the terms of the FinCo MRA and the confirmations issued for each transaction 

entered into thereunder. The MFGI B/D held the securities comprising the Box Portfolio in 

custody for FinCo. The MFGI B/D had the right to substitute collateral of equivalent value in 

the Box Portfolio and the Box Repo was generally rolled-over on a daily basis; however, the 

securities that formed the Box Repo portfolio are identifiable. As of the October Petition Date, 

the MFGI B/D was obligated to repurchase the Box Repo collateral from FinCo for 

$177,715,443.11. 

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Box Portfolio Repo

2. Trading.

The Unregulated Debtors conducted certain trading activity, including futures, through 

MFGI (and also faced certain of its counterparties directly). In addition, a non-debtor whollyowned subsidiary of Holdings Ltd., MF Global Special Investor LLC (“Special Investor”), also 

acquired a securities portfolio from MFGI and conducted its securities trading activities through 

MFGI. 

3. General Administration. 

As a global trading organization, the MF Global Group had integrated systems, including 

global accounting and tax systems and programs. Many of the MF Global Group's regulated 

entities also acted as clearing brokers and custodians for their affiliates. As a global 

organization, certain overhead costs and expenses for shared services that were incurred at the 

corporate level were allocated across the group in the ordinary course of their business. It was 

generally believed that system integration, as opposed to operating each of the affiliates in a silo, 

was a more cost-effective use of the MF Global Group's resources. 

FinCo 

MFGI 

B/D 

Margin 

Long 

Position 

Repo 

 Liability 

InterCompany 

 Payable 

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IV. CLAIMS FILED AGAINST THE SIPA ESTATE 

Total Number of Claims Filed Against this Entity 

by the Debtors and their Non-Debtor Affiliates66: 68. 

Total Value of Those Claims: $2,317,765,096.00. 

On November 23, 2011, the Court entered an order establishing January 31, 2012 as the 

bar date for customers’ claims against the SIPA estate and established June 2, 2012 as the 

general bankruptcy claims bar date.67 The Debtors' estates filed 68 claims against MFGI totaling 

in excess of $2.3 billion. 

Securities and Futures Claims Filed Against MFGI 

by the Debtors and their Non-Debtor Affiliates: 58. 

Total Value of Those Claims: $646,798,448.00 

General Unsecured Claims Filed Against MFGI 

by the Debtors and their Non-Debtor Affiliates: 10. 

Total Value of Those Claims: $1,670,966,648.00 ($600 million in Sub-Debt claims) 

The below chart reflects a more detailed breakdown of the claims filed by the Debtors and nondebtor affiliates.

 

66 In addition, contingent and unliquidated claims were filed by the Debtors against MFGI. 

67 In re MFGI Inc., Case No. 11-02790 (MG) SIPA Docket No. 423. 

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Debtors’ and Non-Debtor Affiliates’ Claims Against MFGI

Claimant Class of Claim No. of 

Claims Amount Description 

Holdings Ltd. Securities Customer 1 $77,332,223 HTM 

Holdings Ltd. Securities Customer 1 Unliquidated Trading 

Holdings Ltd. Futures Customer 3 Unliquidated Trading 

Holdings Ltd. General Unsecured 1 $38,720,558 General 

Holdings USA General Unsecured 1 $36,585,647 General 

Holdings USA General Unsecured 1 $130,000,000 Sub-Debt 

FinCo Securities Customer 1 $127,151,670 

RRTM, Box 

Repo68

FinCo Futures Customer 10 $36,857,586 Margin Financing 

FinCo General Unsecured 1 $990,943,179 Loans 

FinCo General Unsecured 1 $552,948 General 

FinCo General Unsecured 1 $470,000,000 Sub-Debt 

Special Investor Securities Customer 21 $352,061,762 9/30 statements 

Special Investor Securities Customer 12 Unliquidated Trading 

Special Investor Futures Customer 1 $140,841 Trading 

Capital Futures Customer 3 $28,236,299 Trading 

Capital General Unsecured 1 $3,733,828 Trading 

Market Services Futures Customer 3 $25,016,824 Trading 

FX Clear Securities Customer 1 Unliquidated Trading 

FX Clear Futures Customer 1 $1,243 Trading 

FX Clear General Unsecured 1 $398,448 General 

FX Clear General Unsecured 1 $29,300 General 

MFGA General Unsecured 1 $2,740 General 

Total 68 $2,317,765,096

A. Legal Issues Related to the Debtors’ Claims 

1. Holdings Ltd. Securities Customer Claim Related to HTM Portfolio. 

Holdings Ltd. filed a securities customer claim in an estimated amount of $77,332,223 

relating to the HTM Repo transactions. These claims were estimated because, prior to the 

customer claims bar date, the Trustee was not in possession of an October account statement, but 

rather was relying on the Debtors’ internal risk reports. The Trustee was not in possession of 

 

68 The total amount financed under the Box Repos was $177,715,443.11. 

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details confirming the liquidation of HTM securities that took place after September 25, 2011. 

Therefore, the Trustee determined that, out of an abundance of caution, Holdings Ltd. should file 

an estimated claim, subject to reconciliation of its books and records with those of the MFGI 

B/D, the counterparty to the HTM transactions. The SIPA Trustee has not yet provided the 

details confirming the liquidation of the HTM portfolio after October 25, 2011. 

2. FinCo Repo Claim. 

On May 18, 2012, the SIPA Trustee denied the FinCo claim related to the Repo 

transactions, including the RRTM and the Box Portfolio, when he sent the FinCo estate a letter 

of determination as to that claim. The SIPA Trustee stated that he denied FinCo’s claim because, 

in his determination, the cash and securities upon which FinCo filed its claim are not customer 

property pursuant to SIPA. In addition, the SIPA Trustee indicated that FinCo’s claims were 

being converted to general creditor claims. Moreover, FinCo’s claim for $177,715,443.11 was 

being reduced to the liquidation value of $63,690,295.38, which appeared on FinCo’s account 

statement as of October 31, 2011. 

The Trustee will object to the SIPA Trustee’s determination of the FinCo claim for 

several reasons. First, a number of courts have found that a participant in Repo transactions is a 

customer for SIPA proceedings. In the Matter of Bevill, Bressler & Schulman Asset 

Management Corp., 67 B.R. 557 (D. N.J. 1986); City of Elkins v. Charles Darwin Davidson (In 

re Swink & Company, Inc.), 142 B.R. 874 (Bankr. E.D. Ark. 1992). Second, the FinCo MRA is 

clear that the parties intended to treat the Box Repo transactions as true purchase and sale 

transactions, with MFGI holding the securities under the FinCo MRA in custody for FinCo’s 

account. Third, both FinCo and MFGI accounted for these transactions distinctly from other 

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financings, secured or unsecured. Thus, the Trustee believes that the FinCo claims are customer 

claims under SIPA, with facts similar to those in Bevill, Bressler and similar cases. 

Alternatively, if the Court finds that FinCo does not fall within the SIPA definition of a 

“customer,” the Court should hold that MFGI, as custodian for the Box Repo securities, should 

turn over the Box Repo securities pursuant to Bankruptcy Code section 543. MFGI only has a 

possessory interest in the Box Repo securities, similar to that of a bailee, and thus the securities 

are not property of the SIPA estate under Bankruptcy Code section 541. 

As previously discussed, many of the documents underlying the Box Repo transactions 

remain in the possession of the SIPA Trustee and have not been provided to the Trustee. 

Although the Trustee believes that FinCo’s claim is a customer claim based on one of the two 

alternative theories summarized herein, the Trustee cannot be certain as to the determination of 

this claim. 

3. FinCo RRTM Claim. 

The SIPA Trustee has indicated that the RRTM was booked flat (i.e., the Repo financing 

was equal to the underlying mark-to-market value of the long position at the time the Repo was 

transacted). Thus, according to the SIPA Trustee, MFGI’s books and records reflect that MFGI 

did not require FinCo to post initial or variation margin with respect to the RRTM transactions. 

FinCo provided funding to MFGI to enable MFGI to meet initial and variation margin calls from 

MFGUK with respect to the RTM portfolio. As a result of FinCo entering into the RRTM 

transaction with MFGI, certain of the financing provided by FinCo to MFGI -- for purposes of 

meeting margin requirements -- should have been characterized as margin posted by FinCo to 

MFGI to support the RRTM transactions (as opposed to a financing). In addition, any additional 

margin required of MFGI by MFGUK related to the RRTM position should have been 

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characterized as margin posted by FinCo to MFGI rather than as an intercompany loan. 

Accordingly, it is the Trustee’s belief that a portion of the intercompany loans FinCo provided to 

MFGI should be characterized as margin related to the RRTM position. The finance function of 

MFGI in Chicago, however, was responsible for booking the intercompany general ledger 

entries. Therefore, the Trustee believes that FinCo should have either a direct claim against 

MFGUK for the margin related to the RRTM position or, in the alternative, FinCo should be 

entitled to priority treatment as a customer of MFGI with a portion of the intercompany loan 

recharacterized to properly reflect its true nature (i.e., a margin payment). 

4. Special Investor Securities Customer Claims. 

Special Investor filed securities customer claims in an estimated amount of 

$352,061,762.16, relating to twenty-one securities accounts. These claims were estimated 

because, prior to the customer claims bar date, the Trustee only possessed account statements as 

of September 30, 2011. On April 18, 2012, the SIPA Trustee rejected Special Investor’s 

securities customer claims based upon an alleged subordination agreement, purportedly entered 

into between Special Investor and MFGI dated as of August 19, 2011. In the subordination 

agreement, Special Investor purportedly agreed to subordinate its claims to those of MFGI’s 

customers and creditors. 

In his denial letter, the SIPA Trustee valued the Special Investor securities claim at 

$43,768,836 as of October 31, 2011. The Trustee is continuing to investigate the propriety and 

enforceability of the purported subordination agreement referred to in the SIPA Trustee’s denial 

letter. The Trustee will decide whether to object to the SIPA Trustee’s claim determination upon 

completion of his investigation. 

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5. Futures Customer Claims. 

On December 12, 2011, the SIPA Trustee, the CFTC and SIPC submitted memoranda,69

pursuant to the Court’s direction, setting forth their respective positions as to their expectations 

for the SIPA Trustee in allocating and distributing the property of the MFGI estate under the 

various statutory and regulatory provisions applicable to the SIPA Proceeding.70 Each of the 

briefing parties argued that under the applicable regulations and statutes, all customer claims must 

be satisfied in full before property of the estate may be used to pay any general creditors’ claims. In 

addition, the SIPA Trustee, the CFTC and SIPC argued that “insiders,” who were also brokerage 

customers, are subordinated to public customers’ claims. 

On January 9, 2012, the Trustee filed his Statement in Response to Briefing Regarding 

the Legal Principles and Framework for Allocation and Distribution of Customer Property,

71

wherein the Trustee disputed the purported broad authority granted to CFTC to determine what 

constitutes “customer property.” 

All parties acknowledged that there are inconsistencies between the Bankruptcy Code 

and the Part 190 Regulations. The inconsistencies are highlighted in Bankruptcy Code sections 

726 and 766, which addresses the priority scheme for distributions to general unsecured creditors 

in a Commodity Broker Liquidation, and the Part 190 Regulations. Bankruptcy Code section 

766(j)(2) states:

Except as provided in section 510 of this title if a customer is not paid 

the full amount of such customer's allowed net equity claim from 

 

69 In re MFGI Inc., Case No. 11-02790 (MG) SIPA Docket Nos. 724–726. 

70 The briefs state that the applicable statutes and regulatory provisions include 15 U.S.C.§ 78fff to 78fff-4, 

Bankruptcy Code sections 105(a) 764, and 766(c), and 17 C.F.R. § 190.01 through 190.10 (the “Part 190 

Regulations”). 

71 In re MFGI Inc., Case No. 11-02790 (MG) SIPA Docket No.824. 

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customer property, the unpaid portion of such claim is entitled to 

distribution under 726 of this title. 

11 U.S.C. § 766(j)(2). 

The Part 190 Regulations state: 

(a)(1) Customer property includes the following: 

(ii) All cash, securities, or other property which: 

(J) Is cash, securities or other property of the debtor's 

estate, including the debtor's trading or operating 

accounts and commodities of the debtor held in 

inventory, but only to the extent that the property 

enumerated in paragraphs (a)(1)(i)(E) and (a)(1)(ii)(A) 

through (a)(1)(ii)(H) of this section is insufficient to 

satisfy in full all claims of public customers. 

17 C.F.R. § 190.08(a)(1)(ii)(J). 

The potential conflict is actually no conflict at all. The Bankruptcy Code is a set of laws, 

while the Part 190 Regulations are merely a set of rules. Although rules can help to shape and 

aid laws, they cannot supersede or overtake them. One bankruptcy court has held just that. 

According to the Chief Judge for the Northern District of Illinois, when defining “customer 

property” under 17 C.F.R. § 190.08(a)(1)(ii)(J), the CFTC went beyond its rule making 

authority. See In re Griffin Trading Co., 245 B.R. 291 (Bankr. N.D. Ill. 2000). The resulting 

definition of customer property was inconsistent with the plain language of the Bankruptcy 

Code. Id.

72 Moreover, the rule appears to be at odds with the statutory duties that the SIPA 

Trustee owes to both customers and creditors of MFGI. See Adler Coleman, 1998 Bankr. 

LEXIS, at *48. 

 

72 The CFTC appealed the bankruptcy court's decision in Griffin Trading. The decision was vacated as part of a 

settlement agreement before the appeal was decided. 

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The Trustee continues to believe that the SIPA estate will recover sufficient segregated 

funds to pay all public futures customers in full. If, however, there is a shortfall of customer 

assets, the Trustee believes that the SIPA Trustee has misinterpreted the relevant statutory 

authority governing reallocation of general estate assets to cover such customer segregated assets 

shortfalls. Accordingly, except to the extent the SIPA Trustee provides a full accounting of the 

general estate assets sought to be reallocated and such accounting demonstrates that those assets 

should have been segregated pursuant to applicable regulation, the Trustee will continue to 

pursue all legal options to recover all assets to which the Debtors’ estates are entitled. 

MF GLOBAL GROUP ENTITIES IN THE UNITED KINGDOM

I. MF GLOBAL HOLDINGS EUROPE LIMITED (“HOLDINGS EUROPE”) 

Holdings Europe is a wholly-owned subsidiary of Holdings Ltd. Holdings Europe is an 

investment holding company that is currently not in administration or liquidation. 

II. MF GLOBAL U.K. LIMITED 

Total number of claims filed against this entity 

by the Debtors and their Non-Debtor Affiliates:

73 10. 

Total Value of Those Claims: $446.4 million to $563.8 million. 

MFGUK is a wholly-owned subsidiary of Holdings Europe and an indirect subsidiary of 

Holdings Ltd. MFGUK carried on business as a broker providing agency services, matchedprincipal execution and clearing services for exchange-traded and OTC derivative products, and 

non-derivative foreign exchange products and securities in the cash markets, including interest 

rates, equities, currencies, energy, metals, agricultural and other commodities. In connection 

with such business, MFGUK was registered with the United Kingdom’s Financial Services 

Authority (“FSA”) and authorized to carry on a number of regulated activities including advising 

 

73 In addition, contingent and unliquidated claims were filed by the Debtors against MFGUK. 

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and arranging deals in investments, arranging, safeguarding and administering assets, and 

dealing in investments as agent and principal. 

Following the October Petition Date, the directors of MFGUK filed an application for a 

special administration order pursuant to the Investment Bank Special Administration Regulations 

2011 with the High Court of Justice (the “High Court”). The High Court granted the 

application and appointed Richard Fleming, Richard Heis and Michael Pink of KPMG LLP 

(“KPMG”) as joint special administrators of MFGUK (the “Special Administrators”) on 

October 31, 2011. 

A. Reports Filed by the Special Administrators 

The Special Administrators have filed a number of reports and updates in respect of the 

special administration of MFGUK which can be found on a section of KPMG’s website relating 

to the special administration at www.kpmg.co.uk/mfglobaluk. This includes: 

(i) the Special Administrators’ Proposals for achieving the 

purpose of the special administration of MFGUK; 

(ii) the Special Administrators’ presentation provided at the 

meeting of creditors and clients of MFGUK on January 9, 2012; 

(iii) the Special Administrators’ Report for a hearing in the 

High Court of England and Wales on February 3, 2012 (including 

an interim distribution model and commentary on such model); 

(iv) Statement of Affairs of the Directors of MFGUK dated 

March 7, 2012; and 

(v) the Special Administrators’ Progress Report for the six 

month period from October 31, 2011 to April 30, 2012 published 

on May 30, 2012 (the “Six Month Report”). 

B. Overview of Issues Related to Special Administration of MFGUK 

The initial meeting of creditors and clients of MFGUK was held on January 9, 2012. 

During the meeting, the creditors approved the Special Administrators’ Proposals and elected a 

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creditors’ committee. The committee currently consists of (i) BB Energy (Gulf) DMCC, (ii) 

Unipec Singapore Pte Limited, (iii) MFGI, (iv) Peabody Coal Trade International Limited, and 

(v) KIT Finance Europe AS. 

The claims against MFGUK include proprietary claims against assets held by or on 

behalf of MFGUK including in the client money pool (as discussed further below) and claims of 

unsecured creditors. 

The Special Administrators established three separate bar dates depending on the class of 

claim to be filed against MFGUK. The bar date for client assets claims was February 29, 2012. 

The bar date for client money claims was March 30, 2012. The bar date for general creditor 

claims was April 30, 2012. Claims can still be made in respect of all these categories of claims 

after such dates. However, in respect of client monies and general creditor claims, any claim 

made after the bar date is not entitled to share in the first interim distribution in respect of such 

claims (as discussed further below). Any client assets claims made after this date cannot disrupt 

any title acquired by any other person to whom such assets have been transferred. 

Client assets: The Special Administrators are not permitted to return client assets within 

three months of the bar date referred to above and are required to establish a Distribution Plan 

setting out, among other things, the process and mechanism for the return of client assets and a 

schedule of dates on which client assets are to be returned. The Six Month Report states that a 

draft of the Distribution Plan has been shared with MFGUK’s creditors’ committee and must be 

approved by the Court. The Special Administrators state that they intend to apply to the Court 

for the approval of the Distribution Plan in July 2012 with a view to commencing the return of 

client assets as soon as possible thereafter. 

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Client monies: In relation to client monies, an interim distribution has been declared at 

26% of the amount of claims that have been accepted. The Special Administrators commenced 

making interim distributions on client money claims in February, 2012. In the Six Month 

Report, the Special Administrators state that with respect to agreed claims, payments of $92.1 

million had been made as of May 29, 2012. This amount is less than 26% of the total amount of 

agreed claims due to various factors, including timing differences between the agreement of 

claims and the payment of dividends and “know-your-customer” checks. It was also noted that 

over 1,100 clients have submitted claims which conflict with MFGUK’s classification of their 

accounts (which represents approximately 25% of all claims received). The Special 

Administrators also state that as of October 31, 2011, a significant portion of client money was 

held by third parties including clearing houses and exchanges. They state that as at April 30, 

2012, $918 million had been received by the Special Administrators in relation to client money 

and a further $161.8 million is due from affiliates (with 99% of the remaining client monies to be 

recovered now being held at affiliated entities). 

Client money claims against MFGUK have been affected by the UK Supreme Court 

judgment in LBIE v CRC Credit Fund, which was handed down on February 29, 2012. This was 

a directions hearing regarding the FSA’s client money and client money distribution rules 

contained in chapter 7 of the FSA’s Client Assets Sourcebook (“CASS”). Under the CASS 

rules, all client monies held by the relevant firm are pooled upon certain events, including a 

special administration, and all clients entitled to such assets share pro rata in the client money 

pool. The U.K. Supreme Court held that (i) a statutory trust attaches to all client money paid into 

a firm’s house account from the moment it is received (whether money is client money will 

depend upon a number of factors including whether the client is retail or professional and the 

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relevant terms of business), (ii) the client money pool consists of all client money that is 

identifiable in any account of the firm, whether or not a segregated account, and (iii) all clients 

that have an entitlement in respect of client money are entitled to a distribution from the client 

money pool by reference to their objective contractual entitlement to have client money 

segregated as at the date of pooling (whether or not actually segregated). 

The Special Administrators have stated that as a result of this judgment they will need to 

conduct a detailed and thorough regulatory and legal analysis of each client’s position to 

establish if they had a claim in respect of client money that should have been segregated and 

conduct a forensic analysis into MFGUK’s own bank accounts and, potentially, other assets to 

seek to identify client monies that were transferred to such accounts. The Special Administrators 

noted that the assistance of the court was likely to be needed to deal with these issues. 

Thereafter, on May 3, 2012, the Special Administrators filed two applications for 

directions with the High Court of England and Wales. The first application (i) relates to U.S. 

treasury bills transferred by MFGI to MFGUK in respect of which MFGI claims were transferred 

subject to CFTC Rule 30.7, and (ii) seeks directions as to, among other things, (a) the legal basis 

on which such treasury bills were transferred to MFGUK and (b) whether MFGI has a 

proprietary interest and/or client asset claim and/or client money claim in relation thereto. A 

substantive trial on this application is not expected until the second quarter of 2013 at the 

earliest. The second application seeks directions as to whether a client’s client money 

entitlement in respect of an open position is to be valued by reference to the market value at the 

date of pooling or by reference to liquidation value. A substantive hearing in relation to this 

application is not expected until the third quarter of 2012. 

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The Special Administrators have stated that they continue to pursue the recovery of 

approximately $400 million from MFGI in relation to segregated client assets and monies and 

house assets and monies of MFGUK held by MFGI. 

General creditor claims: In relation to non-segregated assets, the Special Administrators 

state in the Six Month Report that they have now received approximately $1.2 billion of nonsegregated assets. They state that in excess of 90% of non-affiliated monies outstanding as at 

April 30, 2012 were held with five entities (reduced to four as at May 30, 2012) and they 

continue to work with these institutions regarding the return of additional amounts. The Special 

Administrators state that they are unable to provide a reliable estimate of total unsecured 

creditors at this time, and material uncertainties remain as to the ultimate quantum of realization 

of non-client assets and the quantum of claims and contingent claims. The Special 

Administrators therefore state that they are currently unable to estimate the likely recovery for 

unsecured creditors. 

1. Claims Filed by the Debtors.

74

The claims filed by the Debtors or their non-debtor affiliates under their control generally 

pertain to cost allocation for administrative expenses and smaller intercompany receivables. 

FinCo and Holdings Ltd. filed protective claims for funds loaned to MFGI (which were 

subsequently transferred to MFGUK) to the extent such loans pertained to margin for the RRTM 

transactions or may be recoverable by FinCo or Holdings under various legal theories. 

The Unregulated Debtors' activities with MFGUK primarily were related to foreign 

exchange and derivative product trading governed by ISDA Master Agreements.75 After the 

 

74 Although the following claims are shown in U.S. Dollars, all claims submitted against entities in administration 

in the United Kingdom are required to be converted into GBP at the relevant exchange rate on the debtor’s petition 

date. In relation to US$, the relevant exchange rate on the October Petition Date was $1.6141/£. 

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October Petition Date, these agreements were terminated and the Debtors have worked with 

MFGUK to calculate their respective obligations under the terminated agreements. 

The Debtors filed seven general unsecured claims totaling $28.9 million against MFGUK 

and one client asset/general unsecured claim with an estimated value between $124.5 million and 

$242 million, which are detailed in the chart below. In addition, FinCo and Holdings Ltd. each 

filed a protective claim for $293 million for advances made to MFGI that were subsequently 

transferred to MFGUK and may be recoverable by FinCo or Holdings Ltd. Non-debtor MF 

Global Intellectual Properties Kft (“MFG IP”), a Hungarian subsidiary wholly-owned by 

Holdings Ltd., also filed a claim against MFGUK. 

Debtors’ Claims Against MFGUK

Claimant Class of Claim Amount

Holdings Ltd. General Unsecured $3,988,608 

Holdings Ltd. General Unsecured $293,000,00076

Holdings USA General Unsecured $277,804

FinCo General Unsecured $293,000,00077

FinCo Client Asset/General 

Unsecured

$124,480,000 - $241,920,000 

Capital General Unsecured $4,979,060 

FX Clear General Unsecured $17,099,086

MFG IP General Unsecured $770,966

Holdings Overseas General Unsecured $1,410,172

Holdings Europe General Unsecured $354,780

Total $446,360,476 - $563,800,476 

On May 3, 2012, the Special Administrators notified FinCo that its claim had been 

rejected in full. In accordance with the relevant rules relating to the special administration of 

 75 See Annex ¶ 6 for an explanation of ISDA. 

76 Each of the claims filed by Holdings Ltd. and FinCo were filed to protect potential claims for the recovery of 

funds loaned by Holdings Ltd. and FinCo to MFGI and then were subsequently transferred to MFGUK. The Trustee 

did not include both claims in the total listed in this chart. 

77 Supra note 76. 

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MFGUK, FinCo had 21 days to appeal against such rejection or it would lose its right to object. 

Accordingly, on May 24, 2012, FinCo lodged an appeal against the rejection of its claim. The 

initial hearing in respect of such appeal is scheduled to be heard in August 2012. 

III. MF GLOBAL UK SERVICES LIMITED (“UK SERVICES”) 

UK Services is a wholly-owned subsidiary of Holdings Europe and an indirect subsidiary 

of Holdings Ltd. On October 31, 2011, Richard Fleming, Richard Heis and Michael Pink of 

KPMG were appointed as joint administrators of UK Services, which provided employee and 

pension services in relation to the UK operations. On December 19, 2011, Blair Nimmo of 

KPMG was appointed as an additional administrator of UK Services with the role of primarily 

and independently acting on behalf of UK Services in relation to the negotiation of a 

management agreement with the Special Administrators of MFGUK. The Debtors have not filed 

any claims against this entity. 

IV. MF GLOBAL FINANCE EUROPE LIMITED (“FINANCE EUROPE”) AND MF 

GLOBAL MFG OVERSEAS (“MFG OVERSEAS”) 

Total number of claims filed against Finance Europe 

by the Debtors and their Non-Debtor Affiliates: 3. 

Total Value of Those Claims: $346,717,352.00. 

As a result of the Holdings Ltd. and FinCo bankruptcy filings and the subsequent 

administrations and filings of affiliates in the United Kingdom and Asia, the directors of MFG 

Overseas and Finance Europe determined that those entities were likely to become insolvent due 

to a lack of liquidity, uncertainty as to the value of their assets, and their respective liabilities that 

would become due and payable. Consequently, the boards of directors resolved to appoint 

Richard Fleming, Richard Heis and Michael Pink of KPMG as administrators (the 

“Administrators”) for both entities on November 2, 2011. 

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Finance Europe is a wholly-owned subsidiary of Holdings Ltd. It was registered in 

England and Wales and its principal purpose was to provide financing services to the MF Global 

Group. 

Potentially the most significant asset of Finance Europe is a loan of $250 million made to 

MFGUK. The Administrators have, however, stated in their reports that the terms of the loan 

provide for subordination of all payments under the loan. According to the Administrators, 

Finance Europe’s claim for the unpaid loan amount ranks behind amounts payable to unsecured 

creditors of MFGUK. 

Total number of claims filed against MFG Overseas 

by the Debtors and their Non-Debtor Affiliates: 3. 

Total Value of Those Claims: $5,815,380.00. 

MFG Overseas is a wholly-owned subsidiary of MF Global Holdings Overseas Limited 

(“Holdings Overseas”) and an indirect subsidiary of Holdings Ltd. MFG Overseas acted 

principally as an investment holding company for the MF Global Group’s assets in Asia and 

Canada. 

The below chart sets forth claims filed by the Debtors against Finance Europe and MFG 

Overseas. 

Claims Against Finance Europe and MFG Overseas

Claimant Debtor Class of Claim Amount 

Holdings Ltd. Finance Europe General Unsecured $34,224,652 

Holdings Overseas Finance Europe General Unsecured $299,309,693 

Holdings Europe Finance Europe General Unsecured $13,183,008 

Total $346,717,353 

Holdings Ltd. MFG Overseas General Unsecured $75,000 

Holdings Overseas MFG Overseas General Unsecured $5,713,600 

MF Global 

Clearing Services 

Limited 

MFG Overseas 

General Unsecured $26,780 

Total $5,815,380 

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A. Creditors’ Committees of MFG Overseas and Finance Europe

Holdings Ltd., by virtue of its direct claims and the claims of non-debtor affiliates, as set 

forth in the chart above, controls all three seats on the creditors’ committee for Finance Europe 

and MFG Overseas. The Trustee, through the creditors’ committee, continues to aid the 

Administrators and provide input on the development of a strategy for the recovery of assets and 

the flow of funds up to Holdings Ltd. The Administrators continue to provide timely 

informational updates with respect to the posture of the subsidiary asset sales and the 

Administrators continue to consult with the Trustee on important decisions. 

The Administrators are currently adjudicating intercompany claims and working with the 

Trustee to ensure a rapid distribution of funds after the liquidation of various assets held by their 

estates. The Trustee and his advisors are seeking to develop a strategy for interim distributions 

with the Administrators, which is likely to be through the establishment of a company voluntary 

arrangement.78 The Trustee also is working with the Administrators to develop a strategy in 

relation to the final distribution of assets. 

In addition, the Trustee and the Administrators have entered into an agreement with the 

Committee, allowing the Committee “observer” status on the creditors’ committees of Finance 

Europe and MFG Overseas. This arrangement will facilitate the flow of information to the 

Committee and their advisors from the Administrators, provided they execute an appropriate 

non-disclosure agreement. 

On February 22, 2012, the Trustee and the Administrators entered into a Cross-Border 

Insolvency Protocol to facilitate the coordination of the proceedings in relation to each estate, 

and to enable the Trustee and the Administrators to cooperate efficiently, effectively, and 

 

78 A company voluntary arrangement is a binding scheme or arrangement between creditors under supervision of 

an independent supervisor that must be approved at meetings of creditors and members. 

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expeditiously in the administration of their respective estates in the best interests of all of the 

creditors of each estate and other potential stakeholders. 

MF GLOBAL GROUP ENTITIES IN THE REST OF THE WORLD

I. AUSTRALIA 

Total Number of Claims filed Against Australian Entities 

by the Debtors and their Non-Debtor Affiliates: 4. 

Total Value of Those Claims: $1,389,905.00. 

The MF Global Group’s Australian operations were performed by three entities, two of 

which were operationally active as of the October Petition Date. MF Global Australia Limited 

(“MFG Australia”), a wholly-owned subsidiary of MFG Overseas, was a regulated entity that 

provided derivatives brokering and clearing services. BrokerOne Pty Limited was a whollyowned subsidiary of MFG Australia that was operationally inactive at the time of administration. 

MF Global Securities Australia Limited (“MFG Securities Australia”), another wholly-owned 

subsidiary of MFG Overseas, was a regulated entity that provided securities brokerage services. 

As of September 30, 2011, MFG Overseas' balance sheet reflected a book value for its 

equity investment in MFG Australia at £20.3 million, and a book value for its equity investment 

in MFG Securities Australia at £3.2 million. The Australian entities are currently in 

administration proceedings and in the process of liquidation. Chris Campbell, Vaughan 

Strawbridge and David Lombe, of Deloitte, were appointed administrators of the three Australian 

entities on November 1, 2011. The administrators have taken control of the Australian entities 

and all of their operations with immediate effect, in accordance with the Corporations Act 2001

(Cth) (Act).

An official claims bar date has not been established by the administrators. The below 

chart details the claims filed by the Debtors against the Australian entities. 

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Claims Filed by the Debtors Against the Australian Entities 

Claimant Debtor Class of Claim Amount 

Holdings Ltd. MFG Australia General Unsecured $726,226 

Holdings Ltd. MFG Securities 

Australia General Unsecured $139,628 

Holdings USA MFG Australia General Unsecured $523,132 

Holdings USA MFG Securities 

Australia General Unsecured $919 

Total $1,389,905 

II. CANADA 

Total Number of Claims Filed Against this Entity 

by the Debtors and their Non-Debtor Affiliates: 5. 

Total Value of Those Claims: $ 1,216,100. 

MF Global Canada Co. (“MFG Canada”) was an indirect, wholly-owned subsidiary of 

MFG Overseas. MFG Canada was a regulated Canadian broker-dealer that mainly placed orders 

for commodity futures and options contracts on behalf of its clients. The majority of those 

orders were executed and cleared by MFGI. MFG Canada also served as the clearing agent for 

trades of MFGI that were made on the Bourse de Montreal Inc. and ICE Futures Canada. As of 

September 30, 2011, MFG Overseas’ balance sheet reflected the book value for its equity 

investment in MFG Canada at £1.6 million. 

On November 4, 2011, KPMG Inc. (Canada) was appointed as trustee in bankruptcy. To 

date, MFG Canada clients have received an 80% distribution from the estate. Substantially all of 

the Canadian client claims protected by the Canadian Investor Protection Fund -- defined as 

those clients with balances less than C$5 million -- either have been settled in full or paid in 

substantial part. 

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The trustees for MFG Canada established May 10, 2012 as the bar date for filing client 

claims, although all creditors were encouraged to submit claims by this date. At this time, the 

Trustee cannot estimate the potential distribution the Debtors may receive on account of these 

filed claims. In addition to the claims held by the Debtors (as set forth in the below chart), MFG 

IP has a claim against MFG Canada. 

Claims Held Against MFG Canada

Claimant Class of Claim Amount 

Holdings Ltd. General Unsecured $676,049 

Holdings USA General Unsecured $396,916 

MFG IP General Unsecured $21,676 

Capital General Unsecured $94,832 

FX Clear General Unsecured $26,627 

Total $1,216,100 

III. HONG KONG 

Total Number of Claims Filed Against These Entities 

by the Debtors and their Non-Debtor Affiliates: 4. 

Total amount of those claims: $1,180,965. 

The MF Global Group’s Hong Kong operations were performed by two entities: MF 

Global Holdings HK Limited (“Holdings HK”), which is a wholly-owned subsidiary of MFG 

Overseas, and MF Global Hong Kong Limited (“MFG HK”), which was a regulated entity and a 

member of the Hong Kong Futures Exchange Limited and the Stock Exchange of Hong Kong 

Limited. MFG HK's principal activity was providing brokerage services to its customers. 

On November 2, 2011, Patrick Cowley, Fergal Power and Lui Yee Man were appointed 

joint and several provisional liquidators of Holdings HK and MFG HK. The initial meeting of 

creditors took place on March 22, 2012, and was attended by the Trustee’s financial advisors. 

The Debtors were elected as one of the five members of the committee of inspection for 

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Holdings HK. The Debtors were one of nine creditors that expressed interest in sitting on the 

MFG HK committee of inspection; however, the committee is limited to seven members. The 

provisional liquidators have submitted an application with the Hong Kong court seeking, among 

other things, court approval for the Debtors to be included on the committee. This process takes 

four to eight weeks and the court has not yet set a hearing date on the application. 

The Debtors filed four general unsecured creditor claims totaling $1.18 million against 

Holdings HK and MFG HK. The Trustee is unable to determine the likelihood of a recovery 

because the recoveries from these entities are highly dependent upon distributions received from 

other affiliates on account of intercompany claims. Below is a chart that details the Debtors’ 

claims against Holdings HK and MFG HK. 

Claims Against Holdings HK and MFG HK

Claimant Debtor Class of Claim Amount

Holdings Ltd. MFG HK General Unsecured $114,902

Holdings Ltd. Holdings HK General Unsecured $403,525

Holdings USA MFG HK General Unsecured $ 408,716

Holdings USA Holdings HK General Unsecured $253,822

Total US$1,180,965

IV. INDIA 

Total Number of Claims Against This Entity 

by the Debtors and their Non-Debtor Affiliates: 7.

Total Value of Those Claims: $832,541.00. 

The MF Global Group’s Indian operations are comprised of four principal elements 

discussed below. As of September 30, 2011, MFG Overseas’ balance sheet reflected a book 

value for its Indian operations at £14.8 million. 

MF Global Sify Securities India Pvt. Limited (“MFG Sify”) is a registered broker-dealer 

that offered institutional equity offerings and retail brokerage and research. MFG Sify is a joint 

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venture between MFG Overseas and Satyam Infoway Limited (now known as Sify Technologies 

Limited) in which MFG Overseas owns 70.15% of the equity. MFG Sify had two operating 

subsidiaries: (i) MF Global Commodities India Pvt Limited, a wholly-owned subsidiary that 

provides brokerages services in the Indian commodities market, and (ii) MF Global Middle East 

DMCC, a wholly-owned subsidiary that is a trading and clearing member of the Dubai Gold & 

Commodities Exchange. 

MF Global Centralised Services India Pvt. Limited (“MFG Centralised Services”) is a 

wholly-owned subsidiary of MFG Overseas, and is a trading and clearing member of the Dubai 

Gold & Commodities Exchange. 

MF Global India Pvt. Limited is also a wholly-owned subsidiary that acts as a broker for 

other companies of the MF Global Group and receives commissions for trades performed by 

customers of MFG Centralised Services on overseas transactions. 

MFG Overseas owns 74.99% of MF Global Finance & Investment Services India Pvt. 

Limited (“MFG F&I”), which offers lending services against securities, property and gold. 

MFG F&I is registered with the Reserve Bank of India as a non-deposit, non-banking financial 

company. 

On March 26, 2012, the Administrators agreed to the terms of a sale of MFG Overseas’ 

share holdings in the Indian operations with Phillip Capital Group. MFG Overseas anticipates 

realizing an influx of funds from the proceeds of the sale depending on tax issues. The sale is 

subject to regulatory approval of the purchaser. 

The Debtors’ books and records show intercompany receivables due from the Indian 

affiliates as set forth in more detail in the chart below. 

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Intercompany Receivables Owed to the Debtors

Claimant Debtor Class of Claim Amount

Holdings Ltd. MFG Sify General Unsecured $695,197

Holdings Ltd. MFG Centralised 

Services. General Unsecured $51,247

Holdings USA MFG Sify General Unsecured $45,110

Holdings Ltd. MFG Middle East 

DMCC General Unsecured $20,047

Holdings USA MFG Sify General Unsecured $45,110

Holdings USA MFG Middle East 

DMCC General Unsecured $13,950

FX Clear MFG Middle East 

DMCC General Unsecured $2,653

Total $832,541

V. IRELAND 

MF Global Clearing Services Limited (“MFG Clearing”), a wholly-owned subsidiary of 

MFG Overseas, was created to provide clearing services for The Bank of New York Mellon. As 

of September 30, 2011, MFG Overseas’ balance sheet reflected a book value for its equity 

investment in MFG Clearing of £17,073. This entity is currently dormant and the Debtors do not 

anticipate realizing any value upon its dissolution. 

VI. JAPAN 

Total Number of Claims to be Filed Against this Entity 

 by the Debtors and their Non-Debtor Affiliates: 4.

Total Value of Those Claims: $739,777. 

MF Global FXA Securities Limited (“FXA Securities”), a wholly-owned subsidiary of 

MFG Overseas, was a regulated entity engaged primarily in the cash equity brokerage business 

and OTC margin foreign exchange business. On November 1, 2011, FXA Securities was placed 

under administration by the Financial Services Authority, the Japanese regulatory agency with 

oversight responsibility for FXA Securities. As of September 30, 2011, MFG Overseas' balance 

sheet reflected a book value for its equity investment in FXA Securities at £28.5 million. 

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FXA Securities entered liquidation following an extended sales process that failed to gain 

final approval from the Japanese Financial Services Authority. The deadline for filing general 

unsecured claims against FXA Securities is June 13, 2012. As set forth in the chart below, the 

Debtors and MFG IP intend to file a total of four general unsecured creditor claims totaling 

$739,877 against FXA Securities. The Debtors anticipate receiving a full recovery on account of 

its unsecured claims. The below chart details the Debtors’ and MFG IP’s claims against FXA 

Securities. 

Claims Against FXA Securities

Claimant Class of Claim Amount 

Holdings Ltd. General Unsecured $227,065 

Holdings USA General Unsecured $470,219 

Capital General Unsecured $6,644 

MFG IP General Unsecured $35,849 

Total $739,877 

In addition, the Administrators have indicated that they anticipate receiving a distribution 

on account of MFG Overseas’ equity based on a current projected cash surplus after liquidation 

costs. 

VII. MAURITIUS 

Total Number of Claims Against this Entity 

by the Debtors and their Non-Debtor Affiliates: 1. 

Total Value of Those Claims: $ 55,400.

MF Global Mauritius Pvt Ltd (“MFG Mauritius”), a wholly-owned subsidiary of MFG 

Overseas, was an unregulated entity engaged in brokering and trading activities. As of 

September 30, 2011, MFG Overseas' balance sheet reflected a book value for its equity 

investment in MFG Mauritius at £683,824. 

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MFG Mauritius has not yet entered liquidation proceedings. Holdings Ltd. has general 

unsecured creditor claims totaling $55,400 against MFG Mauritius. Holdings Ltd. anticipates 

receiving a full recovery on account of its unsecured claims. In addition, the Administrators 

have indicated that they currently anticipate receiving a distribution on account of MFG 

Overseas’ equity based on a current projected cash surplus after liquidation costs. It is 

anticipated that a distribution on account of equity to MFG Overseas ultimately will benefit 

Holdings Ltd. 

VIII. SINGAPORE 

Total Number of Claims Filed Against this Entity 

by the Debtors and their Non-Debtor Affiliates: 3. 

Total Value of Those Claims: $ 26,514,373.

MF Global Singapore Pte. Limited (“MFG Singapore”), a wholly-owned subsidiary of 

MFG Overseas, was a regulated broker-dealer that engaged in exchange traded and OTC 

derivative transactions. As at September 30, 2011, MFG Overseas' balance sheet reflected a 

book value for its equity investment in MFG Singapore at £58.6 million. 

On November 2, 2011, Chay Fook Yuen, Bob Yap Cheng Ghee and Tay Puay Cheng of 

KPMG were appointed provisional liquidators of MFG Singapore. A meeting of creditors was 

held on May 28, 2012. The Trustee was awarded a seat on the committee of inspection. As set 

forth in the chart below, the Debtors and non-Debtor affiliates filed three general unsecured 

creditor claims totaling approximately $26.6 million against MFG Singapore. At the creditors' 

meeting, the liquidators provided a statement of MFG Singapore's affairs, and distributions are 

highly dependent upon recoveries from claims MFG Singapore has made against other former 

affiliates. At this time, the Trustee does not know the potential distribution the Debtors may 

receive on account of these claims. 

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Claims Against MFG Singapore

Claimant Class of Claim Amount 

Holdings USA General Unsecured $1,219,597 

FinCo General Unsecured $25,000,000 

MFG IP General Unsecured $294,776 

Total $26,514,373 

 

IX. TAIWAN 

The MF Global Group’s interest in Taiwan is comprised of direct and indirect equity 

interests held in two Taiwanese entities: MF Global Futures Trust Co. Ltd. (“MFG FTE”), in 

which Holdings Ltd. has a 67% direct ownership interest, and Polaris MF Global Futures Co. 

Limited (“Polaris”), a publicly traded Taiwanese broker-dealer that is 11% owned by MFG 

Overseas.79

MFG FTE is a regulated entity and one of Taiwan's first fund managers. MFG FTE is 

not the subject of an insolvency proceeding. As at March 31, 2012, MFG FTE had a net asset 

position of $8 million. MFG Singapore acted as broker to MFG FTE and, as a result, owes 

approximately $7.2 million in margin to MFG FTE. MFG Singapore also acted as broker to 

Polaris and, as a result, the Trustee has been advised that MFG Singapore owes Polaris 

approximately $24 million in margin. Pursuant to a court order restricting repayment of 

segregated funds to affiliates, payment of margin to MFG FTE and Polaris was held up by the 

provisional liquidators of MFG Singapore. By order dated May 25, 2012, the prior Singapore 

court order was clarified to allow payment, as appropriate, to affiliates of MFG Singapore, 

including MFG FTE and Polaris, and the Trustee understands that MFG Singapore is in the 

process of approving an interim distribution to MFG FTE and Polaris. The Trustee is seeking to 

 

79 Effective April 1, 2012, Polaris merged with Yuanta Futures with MFG Overseas maintaining its approximately 

11% ownership share in the surviving entity, Yuanta Polaris Futures Co. Ltd. 

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sell or liquidate MFG FTE. The timing of any direct or indirect realization by the Debtors 

remains subject to approval by Taiwanese regulators and may be contingent upon all Taiwanese 

customers of MFG Singapore and its Taiwan branch receiving the balance of their segregated 

funds from MFG Singapore. 

Polaris had recently traded in the TWD33 per share range, valuing MFG Overseas’ stake at 

approximately $29 million. As of September 30, 2011, MFG Overseas' balance sheet reflected a 

book value for its equity investment in Polaris at £9.99 million. KPMG Taiwan has been 

instructed to manage the sales process. As with MFG FTE, any sale and realization remains 

subject to negotiation with the Taiwanese regulators, assuming all Taiwanese customers are 

made whole for their segregated funds claims. 

MISCELLANEOUS ISSUES

I. RECOVERY OF TRADING CLOSE-OUT VALUATION 

The Trustee and his advisors, in conjunction with the Debtors’ employees, have worked 

diligently to recover funds owed to the Unregulated Debtors as a result of the termination of 

master derivative agreements and the underlying transactions. As a result, the Debtors have been 

able to recover in excess of $25 million for the Unregulated Debtors from such contract 

terminations. 

II. RECOVERY OF TAX REFUNDS 

The Trustee believes that potential federal and state tax refund revenues are likely to 

come into the FinCo and the Subsequent Debtors’ estates that may be in excess of $30 million. 

Pre-petition, FinCo and the Subsequent Debtors applied to the Internal Revenue Service for a 

refund of taxes paid in fiscal year 2009 based on losses from 2011 that could be carried back and 

applied to the 2009 fiscal year. 

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The Internal Revenue Service is nearing completion of an audit of FinCo and the 

Subsequent Debtors and continues to review potential refunds for fiscal years 2007-2011. 

Although the Trustee does not have a finite date as of yet as to when these funds will come into 

the FinCo and the Subsequent Debtors’ estates, he is hopeful the funds will come into these 

estates in 2012. 

III. SALE OF DE MINIMIS ASSETS 

On March 22, 2012, the Trustee filed a motion for entry of an order, pursuant to 

Bankruptcy Code sections 105, 363 and 365, to: (i) establish procedures for the sale or disposal 

of de minimis assets and (ii) authorize the Trustee to (a) pay related fees and (b) assume, assume 

and assign, or reject related executory contracts or unexpired leases (the “De Minimis Sales 

Motion”). The Court held a hearing to consider the De Minimis Sales Motion on April 12, 2012 

and entered an order granting the motion later that day. 

Since the entry of the order granting the De Minimis Sales Motion, the Trustee has 

engaged in one de minimis asset sale, as a result of which two computer servers were sold to IT 

Asset Management Group for $146,640. Oracle America, Inc. (“Oracle”) filed a limited 

objection and reservation of rights because these machines had previously been used to run 

Oracle software. The Trustee and Oracle resolved the issues raised in the limited objection and 

the Court entered an order authorizing the sale. The Trustee has received the funds from this 

sale. 

At this time, no other de minimis asset sales are being contemplated by the Trustee. 

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IV. INSURANCE 

This section of the Report examines the insurance programs maintained by Holdings Ltd. 

as of the October Petition Date.80 Although Holdings Ltd. maintained several types of insurance 

through multiple carriers, this section focuses on the two lines of coverage that have been the 

subject of most of the insurance litigation since the October Petition Date: (i) the professional 

liability, or “errors and omissions,” policies (the “E&O Policies”) issued by MFGA and certain 

third-party excess insurers, and (ii) the directors & officers policies (the “D&O Policies”) issued 

by various insurance companies, for the policy period May 31, 2011 to May 31, 2012 (the 

“Policy Period”). 

A. MFG Assurance 

MFGA is a wholly-owned, Class 1, captive insurance subsidiary of Holdings Ltd., 

domiciled in Bermuda and regulated by the Bermuda Monetary Authority. The Bermuda 

Monetary Authority requires MFGA to maintain a balance of appropriately skilled, experienced, 

and qualified individuals who can apply informed and independent judgment to MFGA’s 

governance.81 Since the commencement of the Chapter 11 Cases, the Bermuda Monetary 

Authority has increased its regulatory interest in MFGA, with specific regard as to whether 

MFGA is continuing to honor its policy obligations. MFGA’s primary responsibility is to 

maintain the E&O Policies. 

 

80 The statements made in this section of the Report are not intended to be and cannot be relied upon as an 

interpretation or determination of the meaning, scope or definition of any term, passage or account of any of the 

insurance programs or policies described herein. No information provided in this section should, can or will serve 

as a legal opinion or determination of any “claim,” as the term claim is used in either the Bankruptcy Code or the 

insurance policies themselves. No one should consider that these are the actual terms and conditions provided in all 

or any of the insurance policies. This Report is not intended to be relied upon as an insurance policy or legal advice. 

81 Section 5.0, BMA Insurance Department, Guidance Note #12, Corporate Governance (2005), 

http://www.bma.bm/uploaded/127-Corporate_Governance_Mar_05.pdf (last visited, May 19, 2012).

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B. The E&O Policies 

For the Policy Period, Holdings Ltd. entered into thirteen E&O Policies with MFGA -- 

one primary policy and twelve excess policies -- providing a total of $120 million in aggregate 

limits of coverage. Holdings Ltd. purchased four additional excess layers of coverage providing 

an additional $30 million in aggregate limits above the MFGA-issued layers. Therefore, 

Holdings Ltd. had $150 million in aggregate limits of coverage under the various E&O Policies 

during the Policy Period.82 The E&O Policies are “claims made” policies, which provide 

coverage for claims actually made against the insured83 during the applicable policy period, 

subject to certain extensions and other terms set forth in the policies. 

MFGA fully reinsured the entire $120 million “tower” of E&O coverage through various 

third-party reinsurance carriers, with the sole exception of the self-insured primary layer 

providing $7.475 million in coverage, with no aggregate limits, in excess of a $25,000 retention 

(similar to a deductible). Under the primary E&O Policy, the first $25,000 of loss arising from 

each single claim is borne by the insured or individual insured, as the case may be, and MFGA 

covers the next $7.475 million of such loss, without recourse to reinsurance. Loss from any 

single claim in excess of $7.5 million is insured by MFGA up to an aggregate limit of $120 

million, subject to third-party reinsurance policies that mirror the coverage of the MFGA 

policies. Other third-party carriers directly insured Holdings Ltd. against loss from a single 

claim exceeding $120 million, up to $150 million. 

For the primary E&O Policy described above, the total premium owed by Holdings Ltd. 

for the Policy Period was $8,479,959, payable in 12 monthly installments of $706,663.25. For 

 

82 Refer to Exhibit C for a depiction of the E&O Policy tower. 

83 Italicized terms used in this section of the Report shall have the meaning ascribed to them in the definitions 

contained in the E&O Policies, which definitions, in some cases, are provided in this Report. 

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the excess E&O Policies, the total premium owed by Holdings Ltd. was $3,866,793, payable in 

12 monthly installments of $322,232.75. Holdings Ltd. made its last monthly installment 

payments to MFGA in September 2011. MFGA has fully paid to its third-party reinsurers all 

premium amounts due for the entire Policy Period. 

C. Substantive Provisions of the MFGA E&O Policies. 

The E&O Policies cover Holdings Ltd. and its subsidiaries, both domestically and 

abroad, as well as their directors, officers and employees for their actual or alleged acts, errors or 

omissions while in the performance of services provided by Holdings Ltd. and its subsidiaries. 

Specifically, subject to certain exceptions listed therein, the E&O Policies provide: 

The insurer shall pay on behalf of the insured for all loss arising 

out of a wrongful act which gives rise to a claim first made against 

an insured by a third party during the policy period (or discovery 

period, if applicable) and reported in writing to the insurer

pursuant to the terms of this policy. 

To properly understand the above language, a breakdown of the defined terms is 

necessary. The E&O Policies define the insurer as MFGA. The insureds include the insured 

entity -- Holdings Ltd. and its subsidiaries -- and the individual insureds. Individual insureds is a 

broad-ranging group of employees and persons affiliated with Holdings Ltd. and its subsidiaries, 

including but not limited to: 

(i) Any past, present or future natural person under a contract of 

employment (be it full time, part-time or temporary, or be it 

written or implied) with the insured entity; 

(ii) Any past, present or future natural person working under the 

direct control and supervision of the insured entity; 

(iii) Any past, present or future director or officer when 

performing acts within the scope of the usual duties of an 

employee of the insured entity or while acting as a member of a 

committee duly elected or appointed by resolution of the Board of 

Directors of the insured entity to perform specific, as distinguished 

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from general, directorial acts on behalf of the insured entity . . . ; 

and 

(v) Any past, present or future natural person compensated by the 

insured by wages, salaries, commissions or any other form of 

payments in respect of consultancy services. 

 

The E&O Policies define Loss as follows: 

(i) defense costs; and/or 

(ii) damages, aggravated damages as permitted by law, judgments 

(including pre/post judgment interest), restitution orders of a 

compensatory nature, claimant's costs, co-defendant's costs, legal 

costs and expenses awarded against any insured; and/or 

(iii) settlements negotiated with the insurer's consent (such consent not 

to be withheld unreasonably); and/or 

(iv) awards of punitive, exemplary and multiple damages (where 

insurable by law). Enforceability of this paragraph shall be 

governed by such applicable law which most favors coverage for 

punitive, exemplary and multiple damages; and/or 

(v) awards of any referee, arbitrator, the Financial Services 

Ombudsman or any other ombudsman appointed by the Secretary 

of State for Trade and Industry or similar regulator or by any selfregulatory organization or by any recognized professional body by 

whose rules the insured is bound, 

 in respect of any claim under the policy. 

However, Loss shall not include: 

(a) taxes, unless such taxes form part of an award of damages to a 

third party; 

(b) wages, salaries or other remuneration of any insured; 

(c) the cost of complying with any settlement for or award of nonmonetary relief; or 

(d) principal, interest or other monies accrued or due (either now or in 

the future) but not yet paid to the insured entity as a result of any 

loan, lease or extension of credit. 

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Under the above definition and other terms of the E&O Policies, Loss other than defense 

costs and certain other incidental costs generally arises only upon a determination by a tribunal, 

referee, arbitrator or some other appointed official granting a monetary judgment or award 

against an insured, or upon a final settlement of a claim entered with MFGA’s consent. 

A Wrongful Act is the alleged or actual act, error or omission that leads to a claim. In the 

E&O Policies, Wrongful Act means: 

Any actual or alleged act, error or omission by the insured, or by 

any other person for whose act, error or omission the insured is 

legally responsible, arising out of the provision of, or failure to 

provide the services. For the avoidance of doubt, the term “act, 

error or omission” as used in the foregoing, shall include, but not 

be limited to any: 

(i) breach of duty, breach of trust (including, but not limited 

to, breach of constructive trust) breach of fiduciary duty, 

neglect, error, misstatement, misleading statement, 

misrepresentation, libel, slander, omission or breach of 

warranty of authority; or 

(ii) breach of any statute enacted anywhere in the world 

(including any statutory provisions and/or any rules or 

regulations made by any regulatory body or authority 

thereunder, and including any award of any referee, 

arbitrator, the Financial Services Ombudsman or any other 

ombudsman appointed by the Secretary of State for Trade 

and Industry or similar regulator or by any self-regulatory 

organization or by any recognized professional body by 

whose rules the insured is bound); or 

(iii) other breach of a duty to a third party which is 

actionable at law in tort, or actionable in delict or quasidelict in respect of Scotland. 

To be clear, a claim under the E&O Policies is far different than a “claim” under 

Bankruptcy Code section 101(5). A claim under Bankruptcy Code section 101(5) is defined as 

the: 

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(A) right to payment, whether or not such right is reduced to 

judgment, liquidated, unliquidated, fixed, contingent, matured, 

unmatured, disputed, undisputed, legal, equitable, secured, or 

unsecured; or 

(B) right to an equitable remedy for breach of performance if such 

breach gives rise to a right to payment, whether or not such right to 

an equitable remedy is reduced to judgment, fixed, contingent, 

matured, unmatured, disputed, undisputed, secured, or unsecured. 

11 U.S.C. § 101(5). Under the primary E&O Policy, claim means: 

(i) any suit or proceeding, including any civil proceeding, third 

party proceeding, counter claim or arbitration proceeding, or a 

regulatory proceeding brought by any person or entity against an 

insured for monetary damages or other relief, including nonpecuniary relief for a specified wrongful act; 

(ii) any written demand from any person or entity seeking 

monetary damages or other relief, including non-pecuniary relief, 

from an insured for the results of any specified wrongful act; 

(iii) any official investigation, examination, inquiry or other similar 

proceeding at which an individual insured of the insured entity's 

attendance is required provided such official investigation, 

examination, inquiry or other similar proceeding is directly related 

to an alleged wrongful act of such individual insured or the insured 

entity in their capacity as such: 

(1) once such individual insured is identified in writing by 

such investigating authority as a person against whom a 

civil, criminal, administrative, regulatory or arbitration 

proceeding for monetary, non-monetary or injunctive relief 

which is commenced by: (a) service of a complaint or 

similar pleading; (b) return of an indictment, information or 

similar document (in the case of a criminal proceeding); or 

(c) receipt or filing of a notice of charges may be 

commenced; or 

(2) in the case of an investigation by a regulatory or a 

similar government authority, after the service of a 

subpoena upon such individual insured.84

 

84 This language appears only in the primary policy. The MFGA excess layers say “in the case of an investigation 

by the SEC or a similar state government authority, after the service of a subpoena upon such individual insured.” 

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The different definitions of claim under the E&O Policies, on the one hand, and under the 

Bankruptcy Code, on the other hand, as well as the definition of loss under the E&O Policies, 

have led to significant confusion among some customers of MFGI. 

D. The D&O Policies. 

Holdings Ltd. maintained a D&O insurance program during the Policy Period comprising 

twenty-one primary and excess D&O Policies with a total aggregate limit of $225 million.85 

These policies provided what is commonly known in the insurance industry as Side A, Side B, 

and Side C coverage. Side A coverage provides officers and directors of Holdings Ltd. and its 

subsidiaries with coverage for Loss86 arising from Claims made against those directors and 

officers for Wrongful Acts except when and to the extent that Holdings Ltd. has indemnified 

those directors and officers. Therefore, to the extent Holdings Ltd. or its subsidiaries do not 

indemnify the officer or director, the D&O Policies cover such Loss. Side B coverage (provided 

under the D&O Policies by part (B)(1) of the coverage grant) reimburses Holdings Ltd. or its 

subsidiaries for losses that Holdings Ltd. or its subsidiaries paid on behalf of Insured Persons. 

Side C coverage (provided under the D&O Policies by part (B)(2) of the coverage grant) 

provides entity coverage to Holdings Ltd. or its subsidiaries limited to Loss arising from 

securities claims as defined by the policies. 

The Side A coverage does not have a deductible. The Side B coverage and Side C 

coverage each have a $2.5 million retention by Holdings Ltd. and its subsidiaries. The first ten 

layers of the D&O Policy tower provide $150 million in aggregate limits as to types of coverage 

(Sides A, B and C). The next four layers -- which provide coverage for losses arising from a 

 

85 Refer to Exhibit D for a depiction of the D&O Policy tower. 

86 Bold terms used in this section of the Report shall have the meaning ascribed to them in the definitions 

contained in the D&O Policies, which definitions, in some cases, are provided in this Report. 

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single claim from $150 million to $200 million -- provide $50 million in Side A coverage to 

officers and directors. The top two layers -- aggregate coverage from $200 million to $225 

million -- provide Side A coverage exclusively for the benefit of Independent Directors. 

E. Substantive Provisions of the D&O Policies. 

 As amended by the endorsements, the insuring agreements in the primary D&O 

Policy, entered into by Holdings Ltd. and U.S. Specialty Insurance Company (“U.S. Specialty”), 

state: 

(A) The Insurer will pay to or on behalf of the Insured Person 

Loss arising from Claims first made during the Policy Period or 

Discovery Period (if applicable), against the Insured Persons for 

Wrongful Acts, except when and to the extent the Company has 

paid such Loss to or on behalf of the Insured Persons as 

indemnification or advancement. 

[a] The insurer will pay, to or on behalf of the Insured 

Persons, Pre-Claim Inquiry Costs or Liberty Protection 

Costs arising from Pre-Claim Inquiries first received by 

the Insured Persons during the policy period or the 

Discovery Period (if applicable), except when and to the 

extent that the Company has paid such Pre-Claim Inquiry 

Costs or Liberty Protection Costs to or on behalf of the 

Insured Persons as indemnification or advancement. 

(B) The Insurer will pay to or on behalf of the Company Loss arising 

from: 

 (1) Claims first made during the Policy Period or the Discovery 

Period (if applicable) against the Insured Persons for Wrongful 

Acts, if the Company has paid such Loss to or on behalf of the 

Insured Persons as indemnification or advancement, and/or 

[a] the Insurer will pay, to or on behalf of the 

Company, Pre-Claim Inquiry Costs or Liberty 

Protection Costs arising from Pre-Claim Inquiries first 

received by the Insured Persons during the Policy Period

or the Discovery Period (if applicable), if the Company has 

paid such Pre-Claim Inquiry Costs or Liberty Protection 

Costs to or on behalf of the Insured Persons as 

indemnification or advancement. 

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 (2) Securities Claims first made during the Policy Period or the 

Discovery Period (if applicable) against the Company for 

Wrongful Acts. 

Putting the terms used in the primary D&O Policy into industry terminology, Insuring 

Agreement (A) is the Side A coverage, Insuring Agreement (B)(1) is the Side B coverage, and 

Insuring Agreement (B)(2) is the Side C coverage. 

The excess layers contain a “following form” provision that provides the same coverage 

as the primary layer. MFGI’s customers have withdrawn most of their litigation as it relates to 

the D&O Policies because the D&O Policies have a priority of payment provision, which states: 

If the Insurer is obligated to pay Loss, including Defense Costs, 

under more than one INSURING AGREEMENT, whether in 

connection with a single Claim or multiple Claims, the Insurer will 

first pay any Loss payable under INSURING AGREEMENT (A) 

and, if the Insurer concludes that the amount of all Loss, including 

Defense Costs, is likely to exceed the Insurer's Limit of Liability, 

the Insurer shall be entitled to withhold some or all of any Loss 

payable under INSURING AGREEMENT (B)(1) or (B)(2) to 

ensure that as much of the Limit of Liability as possible is 

available for the payment of Loss under INSURING 

AGREEMENT (A). If no Loss is payable under INSURING 

AGREEMENT (A), or if the Insurer's obligations under 

INSURING AGREEMENT (A) have been satisfied, then, subject 

to the Insurer's Limit of Liability as set forth in Item 3 of the 

Declarations, the Insurer will pay such Loss as it is required to pay 

under INSURING AGREEMENT (B)(1) or (B)(2) in such manner 

and, in the event of multiple Claims, apportioned among such 

Claims as the Named Corporation shall direct in writing. 

This priority of payment provision provides priority to the Side A coverage (Insuring 

Agreement (A) over the Side B (Insuring Agreement (B)(1)) and Side C (Insuring Agreement 

(B)(2)) coverages. Therefore, under the D&O Policies, officers and directors receive payments 

prior to Holdings Ltd. or its subsidiaries should they both file claims against the policies. 

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F. Insurance-Related Litigation. 

 On February 3, 2012, the Trustee and MFGA served notice that they had entered into a 

stipulation, which they sought to have approved by the Court,87 pursuant to which the Trustee 

and MFGA sought, in the most expeditious and cost-effective way, to allow MFGA to advance 

defense costs and otherwise meet its financial obligations under the E&O Policies. This resulted 

in four objections, all from customers of MFGI.88

By separate motion, on February 8, 2012, U.S. Specialty moved the Court to lift the 

automatic stay to allow U.S. Specialty to advance defense costs and otherwise meet its financial 

obligations under its D&O Policy with Holdings Ltd.89 This resulted in three responses from 

customers of MFGI.90 

The Court consolidated these matters and held a hearing on April 2, 2012 to determine 

whether the automatic stay should be lifted to allow the payment of defense costs of the 

individual insureds under either the D&O Policies or the E&O Policies or both. On April 10, 

2012, the Court issued its opinion, which overruled the various objections and allowed an initial 

“soft cap” of $30 million of defense costs to be paid by MFGA and U.S. Specialty, to be 

apportioned as those insurers saw fit.91

Among those who objected to the stipulation to allow MFGA to perform under the E&O 

Policies were Sapere Wealth Management LLC, Granite Asset Management, and Sapere CTA 

 

87 Docket No. 409. 

88 Docket Nos. 416, 417, 419, 421. 

89 Docket No. 428. 

90 Docket Nos. 477, 482, 484. 

91 Docket No. 619. 

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Fund L.P. (collectively, “Sapere”).92 Sapere has appealed93 the Court’s decision94 to lift the 

automatic stay to allow MFGA and U.S. Specialty to pay defense costs out of their respective 

policy proceeds. Sapere also sought a stay pending appeal, which this Court denied in a written 

opinion.95 After a hearing on May 22, 2012, the District Court likewise denied Sapere’s request 

for a stay pending appeal because, among other reasons, there was not a substantial likelihood 

that Sapere would succeed on its appeal.96 Sapere continues to prosecute the appeal and has 

recently agreed to a briefing schedule with all parties involved. 

V. LITIGATION 

A. Administration of the Chapter 11 Estate 

On December 11, 2011, Sapere filed a motion with the Court requesting that the Debtors’ 

estates be administered pursuant to Bankruptcy Code sections 761–767 (“Subchapter IV”), the 

Commodity Broker’s Liquidation subchapter, and the Part 190 Regulations.97 In addition, Sapere 

sought authorization to conduct a Bankruptcy Rule 2004 investigation of the Debtors. Sapere’s 

motion alleged, without support, that the Debtors stole customer funds from MFGI and asserted 

that the Debtors were commodity brokers. Based on the belief that the Debtors were commodity 

brokers, Sapere argued that MFGI’s customers were entitled to receive priority treatment for the 

alleged $1.6 billion in “missing” customer funds. 

 

92 Docket Nos. 416, 417, 573, 574. 

93 Docket No. 657. Sapere Wealth Management, LLC., et al., v. Freeh,. et al. Case No 12 Misc. 143 (KBF). 

94 Docket Nos. 619 and 652. 

95 Supra note 93.

96 Sapere Wealth Management, LLC., et al., v. Freeh,. et al. Case No 12 Misc. 143 (KBF) (Docket No. 17).

97 Docket No. 278. 

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Objections to the motion were filed by the Trustee and the Committee.98 Those 

objections asserted, among other things, that while Subchapter IV is applicable to the liquidation 

of commodity brokers in cases under chapter 7 of the Bankruptcy Code, the Debtors’ cases were 

administered under chapter 11of the Bankruptcy Code and, therefore, Subchapter IV was not 

applicable to the Debtors’ cases. Furthermore, the Trustee argued that Rule 2004 discovery was 

premature because the Trustee was still conducting his own investigation. The SIPA Trustee 

filed a statement agreeing that Rule 2004 discovery was not warranted at that time and noted 

that, although it did not appear that the Debtors had sufficient assets to pay the alleged shortfall 

of MFGI’s customers, it was the SIPA Trustee’s responsibility to recover the “missing” assets.99 

A hearing on the motion was held on January 19, 2012, during which the Court heard oral 

argument. On February 1, 2012, the Court filed a memorandum opinion and order denying the 

motion in its entirety, finding that Sapere failed to allege any specific facts supporting its motion 

and that there was no legal basis to administer the Debtors’ cases pursuant to Subchapter IV. 100 

In addition, the Court held that Sapere needed to first show that the Debtors’ cases should be 

converted to chapter 7 (relief they had not requested in their motion) and then establish that the 

Debtors were commodity brokers. The Court found that conversion of the cases was not 

warranted and that the Debtors were not commodity brokers. 

On February 15, 2012, Sapere filed a notice of appeal.101 On March 30, 2012, Sapere 

filed a motion seeking direct certification of its appeal to the Second Circuit Court of Appeals.102 

 

98 Docket Nos. 339, 341. 

99 Docket No. 358. 

100 Docket No. 400. 

101 Docket No. 461. 

102 Docket No. 603. 

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The Trustee filed an objection to the motion for certification on April 13, 2012 and the 

Committee filed a joinder to the Trustee’s objection.103 In his objection, the Trustee argued that 

the Court correctly found that the relief sought in the motion had no basis in law and, 

accordingly, the motion did not satisfy the standard for certification of an interlocutory order, 

namely, that the appeal “involves a controlling question of law as to which there is no controlling 

law in the circuit.” On April 25, 2012, the Court filed a memorandum opinion and order denying 

Sapere’s request for certification of its appeal.104 

On May 11, 2012, the District Court docketed the Sapere appeal.105 Sapere filed its brief 

on June 1, 2012. 

B. Corporate Personhood 

On February 6, 2012, Adam Furgatch (“Furgatch”), a customer of MFGI, filed a motion 

requesting that the Debtors’ estates be administered pursuant to Bankruptcy Code sections 523 

and 507.106 The motion, citing to Citizens United v. Federal Election Commission, 558 U.S. 50 

(2010), contended that corporate parents and subsidiaries are “persons” as such term is defined in 

the Bankruptcy Code. Therefore, Furgatch argued, MFGI is entitled to receive “domestic 

support” from its parent, Holdings Ltd., which obligations are granted priority status under the 

Bankruptcy Code. Objections to the motion were filed by the Trustee and the Committee.107 

Those objections asserted, among other things, that there is no basis in law or fact for the 

application of Bankruptcy Code section 523(a)(5) to corporate entities such as the Debtors and 

 

103 Docket Nos. 632, 639. 

104 Docket No. 655. 

105 In re MF Global Holdings Ltd., et al., Case No 12-cv-03757(JMF). 

106 Docket No. 424. 

107 Docket Nos. 479, 481. 

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MFGI. The SIPA Trustee also filed a statement agreeing with the points of authority contained 

in the Trustee’s objection.108 A hearing on the motion was held on March 6, 2012, during which 

the Court heard oral argument from Furgatch’s counsel. Following the hearing, the Court filed a 

memorandum opinion denying the motion in its entirety.109 

On March 20, 2012, Furgatch filed a motion for leave to appeal.110 The Trustee filed an 

objection to the motion for leave to appeal on April 3, 2012.111 In his objection, the Trustee 

argued that the Court correctly found that the relief sought in the motion had no basis in law and, 

accordingly, the appeal was frivolous and did not satisfy the standard for appeal of an 

interlocutory motion, namely, that the appeal “involves a controlling question of law as to which 

there is substantial ground for difference of opinion.” As of the date of this Report, the District 

Court has not granted Furgatch leave to appeal. 

C. Miscellaneous Litigation 

Various parties, including customers of MFGI, former employees of the MF Global 

Group and shareholders of Holdings Ltd., have commenced litigation in multiple districts 

throughout the United States both pre- and post-bankruptcy. Actions filed pre-petition against 

the Debtors have been stayed pursuant to Bankruptcy Code § 362. Actions filed post-petition, 

which arose out of the collapse of the MF Global Group, generally do not name the Debtors as 

parties or are stayed as to the Debtors. A significant number of the customer actions filed postpetition have been consolidated in the Southern District of New York in the case Joseph 

 

108 Docket No. 485. 

109 Docket No. 526. 

110 Docket No. 579. 

111 Docket No. 607. 

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Deangelis v. Jon Corzine, et al., C.A. No. 1:11-07866. Attached as Exhibit E is a chart detailing 

the various litigations. 

VI. CONGRESSIONAL HEARINGS AND TESTIMONY 

Since the October Petition Date, Congress has invited many people associated with the 

Debtors -- whether pre-petition or post-petition, tangentially or directly -- to appear and testify 

before it. The below chart details the hearings held before Congress, and those who appeared as 

witnesses during those hearings. Attached as Exhibit F is the Trustee’s witness statement 

submitted prior to his testimony.112

Date Committee Title of Hearing Witnesses

12/8/2011 House Agriculture 

Committee 

Examination of MF 

Global Bankruptcy Jon Corzine 

12/13/2011 

Senate 

Agriculture, 

Nutrition and 

Forestry 

Committee 

Investigation into the 

MF Global 

Bankruptcy Panel I 

Robert Hupfer 

Jeffrey Hainline 

Dean Tofteland 

C.J. Blew 

12/13/2011 

Senate 

Agriculture, 

Nutrition and 

Forestry 

Committee 

Investigation into the 

MF Global 

Bankruptcy Panel II 

Jon Corzine 

Henri Steenkamp 

Bradley Abelow 

12/13/2011 

Senate 

Agriculture, 

Nutrition and 

Forestry 

Committee 

Investigation into the 

MF Global 

Bankruptcy Panel III 

Terrence Duffy 

James Giddens 

Jill Sommers 

12/15/2011 

Oversight and 

Investigations 

Subcommittee of 

the House 

Financial Services 

Committee 

Collapse of MF 

Global 

Jon Corzine 

Bradley Abelow 

 

112 All of the witness statements associated with the chart below are available upon request to the Trustee at 

mfglobalinfo@mofo.com. 

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2/2/2012 

Oversight and 

Investigations 

Subcommittee of 

the House 

Financial Services 

Committee 

Collapse of MF 

Global: Part 2 Panel I 

Michael Roseman 

Michael Stockman 

2/2/2012 

Oversight and 

Investigations 

Subcommittee of 

the House 

Financial Services 

Committee 

Collapse of MF 

Global: Part 2 Panel II 

Craig Parmelee 

Richard Cantor 

James Gellert 

3/28/2012 

Oversight and 

Investigations 

Subcommittee of 

the House 

Financial Services 

Committee 

The Collapse of MF 

Global; Part 3 Panel I 

Laurie Ferber 

Henri Steenkamp 

Christine Serwinski 

Edith O’Brien 

3/28/2012 

Oversight and 

Investigations 

Subcommittee of 

the House 

Financial Services 

Committee 

The Collapse of MF 

Global; Part 3 Panel II 

Diane M. Genova 

Daniel J. Roth 

Susan M. Cosper 

4/24/2012 

Senate Banking, 

Housing and 

Urban Affairs 

Committee 

The Collapse of MF 

Global: Lessons 

Learned and Policy 

Implications 

Louis Freeh 

James Giddens 

Jill Sommers 

Robert Cook 

Richard Ketchum 

Terrence Duffy 

VII. THIRD PARTY INVESTIGATIONS 

Since his appointment, the Trustee has negotiated and cooperated with the various 

governmental agencies investigating the failure of the MF Global Group, including the SEC and 

CFTC.113 In addition, the Trustee, on April 24, 2012, testified before Congress as to the lessons 

learned thus far from the collapse of the MF Global Group.114

 

113 Docket No. 538. 

114 See Exhibit F for the Trustee’s written statement to Congress prior to his testimony. 

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The Trustee also has commenced his own investigation into the Debtors’ operation of 

their businesses and the facts and circumstances surrounding the Debtors’ precipitous downfall 

as required by Bankruptcy Code section 1106(a)(3), which provides, in pertinent part: 

(a) A trustee shall— 

(3) except to the extent that the court orders otherwise, 

investigate the acts, conduct, assets, liabilities, and 

financial condition of the debtor, the operation of the 

debtor’s business and the desirability of the continuance of 

such business, and any other matter relevant to the case or 

to the formulation of a plan; 

11 U.S.C. § 1106(a)(3). The investigation has included a review of internal documents, 

interviews with current and former employees, and discussions with third parties with knowledge 

of the situation.115 

As soon as practicable, the Trustee will file a statement with the findings of his 

investigation as he is required to do to meet his statutory and fiduciary duties under the 

Bankruptcy Code.116

 

115 Docket No. 653. 

116 Bankruptcy Code section 1106(a)(4) requires: 

(4) as soon as practicable— 

(A) file a statement of any investigation conducted under paragraph (3) 

of this subsection, including any fact ascertained pertaining to fraud, 

dishonesty, incompetence, misconduct, mismanagement, or irregularity 

in the management of the affairs of the debtor, or to a cause of action 

available to the estate; and 

(B) transmit a copy or a summary of any such statement to any 

creditors’ committee or equity security holders’ committee, to any 

indenture trustee, and to such other entity as the court designates; 

11 U.S.C. § 1106(a)(4). 

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CONCLUSION

As detailed in this Report, the Trustee has undertaken the wind-down of an extremely 

complex, global operation. Much of the Trustee's time has been spent interacting with the SIPA 

Trustee and worldwide administrators in order to understand what occurred in the final weeks 

leading up to the October Petition Date and figuring out what steps are necessary to maximize 

the value of the Debtors’ estates. With in excess of $3 billion in claims filed against former 

affiliates, the potential recoveries for the Debtors' creditors will come primarily from recoveries 

on account of such claims. As a result, the Trustee actively follows the proceedings respecting 

those entities and even participates on certain of the creditors’ committees around the world. 

Another potential source of value for the Debtors’ estates is through litigation. The Trustee's 

investigation into potential claims and causes of action is in its early stages, and as it progresses, 

details will be provided to the Court. 

Dated: New York, New York 

June 4, 2012 

 MORRISON & FOERSTER LLP 

 By: /s/ Brett H. Miller

 Brett H. Miller 

Lorenzo Marinuzzi 

Melissa A. Hager 

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 

Attorneys for the Chapter 11 Trustee

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ANNEX 1

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1. Principal or Proprietary Transaction is a transaction entered into by a broker/dealer to 

buy or sell a security for its own account. 

2. A Long Position in a security, such as a stock or a bond, or equivalently to be long in a 

security, means the holder of the position owns the security. 

3. RTMs and RRTMs -- Under the GMRA, MFGI agreed to sell to MFGUK various 

European sovereign debt securities, while simultaneously entering into an agreement to 

repurchase those securities from MFGUK (or securities considered equivalent thereto) at an 

agreed upon repurchase price, on a date falling immediately prior to the maturity date of those 

securities. This type of sale and repurchase agreement is commonly referred to as a repo-tomaturity -- or RTM -- from the point of view of the seller/repurchaser of the securities/equivalent 

securities (in this case, MFGI), and a reverse repo-to-maturity -- or RRTM -- from the point of 

view of the purchaser/reseller of the securities/equivalent securities (in this case, MFGUK). The 

initial Repo funding is usually less than the value of the securities (or collateral) by an amount or 

percentage agreed upon by the parties and included in the confirmation detailing the trade. This 

is known as the initial margin or “haircut.” The initial margin protects the buyer against a drop 

in the value of the collateral, illiquidity of the collateral and counterparty credit risk. In a classic 

Repo transaction, the initial margin is transferred to the buyer (or supplier of cash). The margin 

level for Repos varies according to the underlying collateral and is usually determined based on 

the credit-rating of the security posted as collateral. For example, an investment grade sovereign 

bond (e.g., UK or Germany) might require a 0-2% haircut, while a non-investment grade bond 

may require a 15% haircut. The market value of the collateral is maintained through the posting 

of “variation margin.” Variation margin gets its name because the level of additional margin 

varies with the value of the collateral -- the seller will be required to post additional margin if the 

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collateral decreases in value and the buyer will return margin if the mark-to-market value of the 

collateral increases in value. Potential liquidity risks existed because if the value of the collateral 

underlying the repurchase agreement decreases -- whether because of market conditions or 

because of issuer-specific concerns -- MFGI was required to post variation margin to maintain 

the value of the collateral held by the Exchanges. If the value of the collateral became 

permanently impaired -- for example, if the issuer of the bonds or other securities posted as 

collateral defaulted on its obligations -- MFGI would still have the obligation to repurchase the 

collateral at full value upon the expiration of the Repo. 

4. Margin Reduction Trades are characterized as such because the new positions "offset" 

the existing trades. Brokers are not required to post margin for both long and short positions. As 

a result of the offsetting nature of such trades, the brokers’ portfolio margin requirements are 

reduced. 

5. Hold-to-Maturity -- Under the HTM, Holdings Ltd. agreed to sell to the MFGI B/D the 

HTM securities, with a simultaneous agreement of Holdings Ltd. to repurchase from the MFGI 

B/D those same HTM securities at an agreed repurchase price, on an agreed date falling 

immediately prior to the maturity date of those securities. 

6. ISDA -- The International Swaps and Derivatives Association (ISDA) is a trade 

organization of participants in the market for over-the-counter derivatives. ISDA has created a 

standardized contract (the ISDA Master Agreement) used by counterparties that enter into 

derivatives transactions. 

7. Stock/Bond Borrow and Stock/Bond Loan are the different sides to a "securities 

lending" transaction. Securities lending is used in the securities markets for specific permitted 

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purposes, which include facilitating (i) settlement of a trade, (ii) delivery of a short sale, (iii) 

financing a security, or (iv) a loan to another borrower who is engaging in one of the 

aforementioned permitted purposes. 

The principal reason for borrowing a security is to cover a short position. Short-sellers 

are required to deliver the security they sold short. Thus, unless the short-seller holds a long 

position in the security, of a "covered" position, the short-seller will have to borrow the security. 

At the end of the securities loan transaction, the borrower is required to return an equivalent

security to the lender. Equivalent in this context means completely interchangeable. 

8. Intercompany Payable refers to a margin payment made from one affiliate of the MF 

Global Group to another affiliate under a Repo that is to be repaid upon maturity, provided that 

no default occurred under the Repo prior to such maturity date. Upon a default, the posted 

margin may be utilized by the non-defaulting party to cover costs associated with unwinding 

closing out the Repo, thereby reducing the Intercompany Payable.

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EXHIBIT A

SUMMARY OF CLAIMS

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Jurisdiction / Entity No. of Claims Filed or To Be Filed Amount117

Australia 4 $1,389,905Canada 5 $1,216,100Hong Kong 4 $1,180,965India 7 $832,541Japan 4 $739,777Mauritius 1 $55,444Singapore 3 $26,514,373United Kingdom  MFGUK 10 $446,360,476 - $563,800,476 Finance Europe 3 $346,717,352 MFG Overseas 3 $5,815,380

United Kingdom Sub-total 16 $798,893,208 - $916,333,208

United States 68 $2,317,765,096 

Total 112 $3,148,587,409 - $3,266,027,409

117 This chart provides a summary by jurisdiction of the claims filed or to be filed by the Debtors and their non-debtor affiliates agains

This chart does not include an estimated value for unliquidated claims filed or to be filed against former affiliates or non-debtor thi

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EXHIBIT B

CORPORATE ENTITY CHART

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EXHIBIT C

E&O POLICY TOWER 

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MF Global Holdings Ltd.

Professional Liability Insurance Program Structure

May 31, 2011 to May 31, 2012

Total Aggregate Limit = $150MM 

$25,000 each single claim retention

MFG Assurance* –

$7.475MM each single claim excess $25K

Houston Casualty Company - $15MM aggrega

XL Specialty - $15MM aggregate exce

Catlin - $10MM aggregate excess 

Federal - $5MM aggregate excess $120MM Reinsurance Purchased by MFG 

Everest Indemnity (5), Continental (5) - $10MM ag

Axis - $10MM aggregate excess $

ACE American - $10MM aggregate exc

MFG Assurance – $15MM aggregate excess $7.5MM

Illinois National - $10MM aggregate exc

Ironshore Indemnity - $5MM aggregate e

New Hampshire (15), ACE American (10) - $25MM a

Axis Specialty Limited Bermuda - $10MM aggre

Allied World Assurance - $15MM aggregate excess $125MM

Ironshore (3.5) and Starr (1.5) - $5MM aggregate excess $140MM

Federal - $5MM aggregate excess $145MM

MFG Assurance – $15MM aggregate excess $15MMMFG Assurance – $10MM aggregate excess $30MMMFG Assurance – $10MM aggregate excess $40MMMFG Assurance – $10MM aggregate excess $50MMMFG Assurance – $10MM aggregate excess $60MMMFG Assurance – $10MM aggregate excess $70MM

MFG Assurance – $5MM aggregate excess $80MM

MFG Assurance – $25MM aggregate excess $85MM

MFG Assurance – $10MM aggregate excess $110MM

*MFG Assurance Company Limited is MF Global Holdings Ltd.’s wholly-owned captive insurance company domiciled in Bermuda and regulated by the Bermuda Monetary AuthorityTHIS DOES NOT REFLECT ACTUAL TERMS AND CONDITIONS. THIS IS NOT INTENDED TO BE RELIED UPON AS AN INSURANCE POLICY OR LEGAL ADVICE.

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EXHIBIT D

D&O POLICY TOWER

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MF Global Holdings Ltd.

Directors & Officers Liability Insurance Program Structure

May 31, 2011 to May 31, 2012

Total Aggregate Limit = $225MM

$150MM –

Side A,

B & C

$50MM –

Side A

Only

$25MM –

Independent 

Director 

Liability

XL Specialty - $25MM aggregate excess $25MM

Axis - $15MM aggregate excess $50MM

ACE American - $10MM aggregate excess $65MM

Illinois National - $10MM aggregate excess $75MM

Federal - $5MM aggregate excess $85MM

New Hampshire (15), Ironshore Indemnity (10), Westchester Fire (10) - $35MM aggregate excess $90MM

Hartford Accident & Indemnity - $10MM aggregate excess $125MM

$2.5MM retention, except nil for Side A

US Specialty - $25MM aggregate excess $2.5MM

Allied World Assurance Company - $10MM aggregate excess $150MM

Axis Specialty - $15MM aggregate excess $160MM

Catlin - $10MM aggregate excess $175MM

Continental Casualty (5), Federal (5), Everest National (5) - $15MM aggregate excess $185MM

Scottsdale Indemnity (10), New Hampshire (5) - $15MM aggregate excess $200MM

US Specialty - $10MM aggregate excess $215MM

Travelers Indemnity - $5MM aggregate excess $135MM

Ironshore Insurance (7), Starr Insurance & Reinsurance (3) - $10MM aggregate excess $140MM

PLEASE NOTE: THIS DOES NOT REFLECT ACTUAL TERMS AND CONDITIONS. 

THIS IS NOT INTENDED TO BE RELIED UPON AS AN INSURANCE POLICY OR LEGAL ADVICE.

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EXHIBIT E

MULTI-DISTRICT LITIGATION CHART

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Item No. 

Case Title118 Case No. Court Nature of 

Alleged 

Claims119

Cl

1. DeAngelis v. Corzine120 11-civ-7866 SDNY C 2. Accomazzo v. Corzine 11-civ-8467 SDNY C 3. Sapere CTA Fund, L.P. v. Corzine 11-civ-9114 SDNY C 4. Henning-Carey Proprietary Trading, LLC 

v. Corzine 

12-civ-3231 SDNY C 

5. Marcin v. Corzine 12-civ-0499 SDNY C 6. Wacker v. Corzine 12-civ-0705 SDNY C 7. Andrews v. Corzine 12-civ-0661 SDNY C 8. Paradigm Global Fund I, Ltd. v. Corzine 12-civ-0740 SDNY C 9. Paradigm Global Fund I, Ltd. v. MFG 

Assurance, Ltd. 

12-civ-2471 SDNY C 

10. Tee v. Corzine 12-civ-0195 SDNY C 11. Summit Trust Co. v. Corzine 12-civ-0087 SDNY C 12. Pierce v. Corzine 12-civ-3588 SDNY C 

118 The following chart is provided for informational purposes only. The inclusion of these cases is not, and should not be, construed as an adm

the claims asserted against the defendants. All Debtors fully reserve all defenses, setoffs and counterclaims in connection with the actions l

119 "C" = an MF Global Inc. customer complaint; "S" = a securities claim. 120 Item numbers 2-23 in the above chart have been consolidated with item number 1, DeAngelis v. Corzine, Case No. 11-civ-7866. 

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Item No. 

Case Title118 Case No. Court Nature of 

Alleged 

Claims119

Cl

13. Klinker v. J.P. Morgan Chase Co. 12-civ-3589 SDNY C 14. Varner, Jr. v. Corzine 12-civ-1722 SDNY C 15. Kennedy v. Corzine 12-civ-1982 SDNY C 16. Context Partners Fund, L.P. v. Corzine 11-civ-8888 SDNY S 17. Rodriguez v. Corzine 11-civ-8815 SDNY S 18. Daly, Jr. as Trustee v. Corzine 11-civ-8823 SDNY S 19. Espinoza v. Corzine 11-civ-7960 SDNY S 20. Double D Trading, LLC v. Corzine 11-civ-8271 SDNY S 21. IBEW Local 990 Pension Fund v. Corzine 11-civ-8401 SDNY S 22. Teamsters Local Union No. 35 Pension 

Fund v.Dan 

12-civ-1782 SDNY S 

23. Arvelo v. Corzine 12-civ-3884 SDNY S 24. Untitled 12-md-2338 SDNY Overall Case 

No. for cases 

transferred by 

MDL 2338 

25. In re MF Global Holdings Ltd. Investment 

Litigation 

MDL No. 2338 MDL Multi District 

Proceeding 

now 

effectively 

concluded 

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Item No. 

Case Title118 Case No. Court Nature of 

Alleged 

Claims119

Cl

26. Butler, Jr. v. Corzine 653074/2011 New York County 

Supreme Court 

Unknown (no 

complaint); 

dormant 

27. McHugh v. MF Global Holdings USA, 

Inc. 

12-civ-0284 SDNY Employee 

claim 

28. Riffice v. MF Global Holdings USA, Inc. 11-civ-0671 SDNY Employee 

claim 

29. Calascibetta, Liquidating Trustee v. MF 

Global 

Case No. 09-14301, 

A.P. No. 11-01220 

Bankr. D.N.J. Fraudulent 

conveyance 

30. Ripes v. MF Global 13-148 E 01209 11 AAA (Chicago) Employee 

claim 

31. Ceko v. MF Global Holdings, Ltd.121 10 CH 25758 Cook County 

Circuit, Il. 

Employee 

claim 

32. Thielmann, et. al. v. MF Global Holdings, 

LTD, et al. 

A.P. No. 11-02880 

(MG) 

Bankr. SDNY WARN 

33. Ivan Schertzer v. Jon Corzine et al NFA 12-ARB-17 NFA Customer 

claim 

121 This adversary proceeding was filed but never served on the defendants. 

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EXHIBIT F

TRUSTEE’S WITNESS STATEMENT

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STATEMENT OF LOUIS J. FREEH

BEFORE THE UNITED STATES SENATE

COMMITTEE ON BANKING, HOUSING & URBAN AFFAIRS

APRIL 24, 2012

Chairman Johnson, Ranking Member Shelby. and Distinguished Members of the 

Committee:

My name is Louis J. Freeh and I am appearing before you today in my capacity as 

the Chapter 11 Trustee of MF Global Holdings Ltd. and five of its subsidiaries.

On October 31, 2011, MF Global Holdings Ltd. and MF Global Finance USA 

Inc., referred to generally as “Finco”, filed for bankruptcy under Chapter 11 of the 

Bankruptcy Code. Upon the commencement of the bankruptcy cases, the debtors 

operated as debtors-in-possession. Shortly thereafter, on November 7, 2011, the Office 

of the United States Trustee formed a creditors’ committee representing the unsecured 

creditor constituency of the Chapter 11 debtor entities. Without any possibility of 

rehabilitation, the debtors and the creditors committee jointly filed a motion to appoint a 

Chapter 11 Trustee. That motion was approved by the Court, and I was named as the 

Chapter 11 Trustee. My appointment was approved by the Bankruptcy Court effective as 

of November 28, 2011. 

On December 19, 2011, three additional MF Global entities that are each indirect 

subsidiaries of the Chapter 11 parent filed for bankruptcy. I was subsequently appointed 

the Chapter 11 Trustee of those entities as well. In addition, on March 2, 2012, MF 

Global Holdings USA Inc., a direct subsidiary of the parent holding company debtor, 

filed for bankruptcy protection. On March 8, 2012 I was also appointed Chapter 11 

Trustee of that estate. As is evident from this brief timeline, we are in the early stages of 

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this bankruptcy proceeding, and there is still much information to be learned about the 

facts and circumstances that led to the collapse of MF Global.

My duties as a Chapter 11 Trustee are set forth in Section 1106 of the Bankruptcy 

Code and include the obligation to investigate the acts, conduct, assets, liabilities and 

financial condition of the debtor, among other things. Unlike the SIPA Trustee, who is 

charged primarily with the return to customers of their investment property, the 

responsibility of the Chapter 11 Trustee is to maximize the value of the estate for the 

benefit of its creditors.

Upon my appointment on November 28, 2011, I began to assemble a team of 

legal advisors and financial consultants with extensive experience in bankruptcy matters, 

as it was widely believed that these proceedings were likely to be among the most 

complex bankruptcy matters in recent memory. We immediately began to assess the 

Debtors’ state of affairs. Investigations into the collapse of MF Global were already 

being conducted by the CME, the SEC, the CFTC, and the SIPA Trustee, and at least two 

federal prosecutors’ offices.. Customers of MF Global Inc., the US broker dealer, had 

already commenced litigation against certain officers and directors of the broker dealer as 

well as those of the parent holding company debtor. 

Even before the commencement of my appointment, the Debtors were faced with 

a number of expansive requests for documents and information and my team immediately 

immersed itself in a process that had already been unfolding for several weeks, in an 

effort to learn what documents were in my possession, how records were maintained, and 

where files were kept. All of this was critical to our ability to fulfill our obligations as 

Chapter 11 Trustee.

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These difficulties were exacerbated by the fact that what had once been operated 

as one large MF Global world-wide organization suddenly became fragmented, virtually 

overnight. Separate proceedings were commenced for individual MF Global entities, 

most notably the SIPA proceeding here in the US and the UK administration (the UK 

equivalent of a US bankruptcy proceeding) of the UK broker dealer, which proceed 

independently from one another. The MF Global entities suddenly found themselves 

without access to global systems previously utilized by the entire group of companies, 

because certain entity-wide systems such as accounting and email systems were owned 

and controlled by individual MF Global companies. 

With these difficulties, the Chapter 11 debtors had been able to assemble some 

materials before my appointment. I needed, however, to ascertain what documents, files, 

information, and materials were the property of the Chapter 11 parent, versus property of 

the SIPA estate, the UK broker dealer estate, or perhaps jointly owned by a Chapter 11 

debtor and another estate. My advisory team was required to review thousands of pages 

of e-mails, documents and other files to determine (1) what those materials said, (2) 

whether the materials were responsive to any request by any governmental agency or the 

SIPA Trustee, and (3) whether any protectable corporate privilege existed. I then needed 

to implement a process to produce as quickly as we could documents requested as part of 

the investigations, but also in a manner that did not unnecessarily result in a broad waiver 

of any existing privilege. To do otherwise at this very early stage potentially could have 

been contrary to my obligations as Chapter 11 Trustee. Ultimately, these issues were 

resolved and the process moved forward expeditiously.

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Although none of the entities for which I serve as Chapter 11 Trustee are 

regulated entities, the concerns of customers are nonetheless important to me and my 

advisors. With a backdrop of allegations of missing customer funds, the Bankruptcy 

Judge, the Honorable Martin Glenn, directed that my team perform an analysis of the 

approximately $25 million held in a cash collateral account owned by Finco to determine 

whether that cash included misappropriated MF Global Inc. customer property. 

Thereafter, my advisors poured through account data and transaction documents covering 

more than $3.5 billion in cash transfers, including transfers from accounts held by MF 

Global Inc. My advisors interviewed and met with employees of MF Global Inc. and 

advisors retained by the SIPA Trustee in order to ensure that an appropriate investigation 

had been conducted in preparing the report. Upon completing the analysis, which was 

shared with the SIPA Trustee, we concluded with no disagreement from the opinion of 

the SIPA Trustee that the cash collateral account did not include misappropriated or 

misdirected customer funds. 

There has been a great deal of publicity regarding the shortfall in customer 

property. Without in any way diminishing the importance of the SIPA Trustee’s 

obligation to locate and recover customer property, the Bankruptcy Code requires me to 

attempt to recover for the benefit of the creditors of the Chapter 11 estates monies that 

were obtained by the parent from third party lenders and investors and routed to the US 

broker dealer or elsewhere. In particular, and by way of example, during the month of 

October, 2011, in excess of $1 billion in cash was transferred from MF Global Holdings 

Ltd. and Finco to MF Global Inc. In addition, a substantial portion of the net proceeds 

from the $650 million of MF Global bonds sold in 2011 to investors by MF Global 

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Holdings Ltd. had been transferred to MF Global Inc. Just as the SIPA Trustee is 

analyzing and investigating the whereabouts of funds and property entrusted by 

customers to the US broker dealer, so too my team must investigate the whereabouts of 

funds loaned to the US broker dealer for which the Chapter 11 estates remain liable to 

creditors and investors.

In furtherance of my duty to investigate the affairs of the Chapter 11 debtors for 

which I serve as Trustee, my advisors and I meet regularly with our creditors committee 

as well as with representatives of the SIPA Trustee and the representatives of the foreign 

affiliates. These meetings are important for each of the estates to gather and share 

information with one another to facilitate a timely investigation of the facts and 

circumstances leading up to the bankruptcy and to determine where the assets of the 

various estates may be located. 

The representatives of the SIPA Trustee and my advisors often speak daily, have 

engaged in information sharing calls at least weekly, and are currently discussing 

coordinated efforts to assist one another in the administration of our respective estates. I 

have found this cooperation to be invaluable, if not essential, to my ability to satisfy my 

fiduciary obligations as a Chapter 11 Trustee. I strongly believe that the interests of all of 

the various estates are best served by cooperating and sharing information to uncover 

precisely what led to the collapse of MF Global. No one estate has all of the information, 

but together, the puzzle pieces can be put together. 

To be clear, the trustees and foreign administrators can and likely will assert 

different legal arguments to support their claims to property located throughout the 

world. The bankruptcy court and perhaps other courts will make those legal 

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determinations. But the ultimate legal disputes that may arise should not serve as a 

barrier to sharing the critical facts to tell the world what led to the collapse. 

Notwithstanding that we are operating under the supervision of the court, however, it is 

clear even at this early stage that the competing, and perhaps at times conflicting, 

obligations and duties of the two Trustees and various foreign administrators has and will 

continue to have the effect of extending the length of time necessary for all of the estates 

to conduct their investigations; to determine the value and location of assets; and 

ultimately to make distributions to customers and/or creditors. 

At the present time, the Chapter 11 debtors employ approximately 15 nonexecutive individuals, most of whom had been employed by one of the debtors prior to 

the commencement of the bankruptcy cases. They, along with the remaining senior 

executives, continue to provide invaluable support in reconciling the debtors’ books and 

records, closing open trades at the unregulated entities, the preparation of tax returns, and 

assisting in understanding the many complex pre-petition transactions between and 

among the various MF Global entities. 

In conversations about retaining these individuals and the knowledge they 

possess, I’ve discussed at various times the possibility of establishing a retention 

program. To be clear, no formal program was ever created for senior executives, nor was 

any motion ever filed with the court for approval in connection with any retention 

program for senior executives. 

As we continue our investigation, we will be filing a report with the Bankruptcy 

Court on or before June 4, 2012. Mindful of this impending deadline, we have filed with 

the Bankruptcy Court a motion seeking authority to issue subpoenas for the production of 

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documents and examination of witnesses on a shortened timetable. That motion will be 

heard on April 25, 2012. We remain hopeful that parties will be cooperative during this

investigation, but a formal process will be utilized as necessary. 

It is important to note that the transparency of the bankruptcy process mandates 

that the work performed by the Chapter 11 Trustee is closely monitored by the Office of 

the United States Trustee and supervised by the United States Bankruptcy Court.

I fully intend to fulfill my legal obligations as Chapter 11 Trustee as timely and 

transparently as I can responsibly do so, recognizing that all of my, and my professionals,

actions must be consistent with the duties and obligations set forth in the Bankruptcy 

Code.

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