UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK FOR PUBLICATION

In re:

MF GLOBAL INC.,

Debtor.

Case No. 11-2790 (MG) SIPA

MEMORANDUM OPINION GRANTING TRUSTEE’S MOTION TO APPROVE 

SECTION 363 PURCHASE AGREEMENT IN FURTHERANCE OF COURT-ORDERED 

BULK TRANSFERS

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

HUGHES HUBBARD & REED LLP

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

One Battery Park Plaza

New York, New York 10004

By: James B. Kobak, Esq.

Jeffrey S. Margolin, Esq.

Josiah S. Trager, Esq.

Dina R. Hoffer, Esq.

PAUL HAMANN

Pro Se

511 Beverly

Lake Forest, Illinois 60045

FOLEY & LARDNER LLP

Counsel for Alexander Coxe

90 Park Avenue

New York, New York 10016

By: Richard J. Bernard

Geoffrey S. Goodman

Alissa M. Nann

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MARTIN GLENN

UNITED STATES BANKRUPTCY JUDGE

Before the Court is the Trustee’s Motion To Approve Section 363 Purchase Agreement in 

Furtherance of Court-Ordered Bulk Transfers (the “Motion”). (ECF Doc. #1046.) In support 

of the Motion, the Trustee submitted the Declaration of Richard M. Siegel (“Siegel Decl.”). 

(ECF Doc. #1046, Exhibit 2). Paul Hamann (“Hamann”) filed an objection to the Motion (the 

“Hamann Objection”). (ECF Doc. #1147.) Also, Alexander Coxe (“Coxe”) filed a response to 

the Motion (the “Coxe Response”). (ECF Doc. #1155.) In response, the Trustee filed an 

Omnibus Reply to Responses to Motion To Approve Section 363 Purchase Agreement in 

Furtherance of Court-Ordered Bulk Transfers (the “Omnibus Reply”). (ECF Doc. #1164.) The 

Court heard oral argument on the Motion on April 2, 2012. The Coxe Response was resolved by 

the Trustee’s agreement to include additional clarifying language in the proposed order. For the 

reasons explained below, the Hamann Objection is overruled and the Court grants the Motion.

BACKGROUND

The background of this case has already been discussed in numerous opinions of this 

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

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

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

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

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

(“Second Bulk Transfer Order”). On December 9, 2011, the Court approved a third bulk transfer 

of certain property of commodities futures customers, (ECF Doc. #717), and also a bulk transfer 

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

Order”).

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As part of the Third Bulk Transfer Order, the Court authorized the Trustee to distribute 

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

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

Customer Property”). Those customers whose Physical Customer Property exceeded the pro 

rata share to which they were entitled either (i) posted deposits so that they could receive the 

excess value of the Physical Customer Property, or (ii) will receive the remainder of their 

distribution pursuant to the Third Bulk Transfer Order following the liquidation of their Physical 

Customer Property.

DISCUSSION

Through the Motion, the Trustee seeks to complete implementation of the Court’s Third 

Bulk Transfer Order by specifically authorizing the Trustee to liquidate the Physical Customer 

Property, consisting of precious metal warehouse receipts (the “Certificates”), remaining under 

his control. The Trustee, working with the Chicago Mercantile Exchange Group (“CME”), 

asserts that the most cost-effective method of converting the Physical Customer Property to cash 

is through a bulk sale of the Certificates to Jefferies Bache Financial Services, Inc. (“Jefferies”) 

for 99% of the aggregate closing price for futures contracts on the precious metals underlying the 

Certificates for the next active trading month (the “Purchase Agreement”). The Trustee notes 

that there have been no other offers to acquire the Certificates through a bulk sale.

Pursuant to 17 C.F.R. §§ 190.02(f)(2) and 190.08(d), specifically identifiable property 

(including Physical Customer Property and the Certificates) must be liquidated if not returned to 

or transferred on behalf of the customer to whom it is identified. Under sections 105 and 363 of 

the Bankruptcy Code, 17 C.F.R. §§ 190.02(f)(2) and 190.08(d), and Rule 6004 of the Federal 

Rules of Bankruptcy Procedure, the Trustee seeks confirmation that the Third Bulk Transfer 

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Order and all of the Court’s rulings pertaining to that Order gives the Trustee the authority to 

enter into the Purchase Agreement with Jefferies, dated March 12, 2012, attached as Exhibit 1 to 

the Motion.

A. The Purchase Agreement

In relevant part, the Purchase Agreement provides as follows:

1. Upon closing, the Trustee will sell the Certificates to Jefferies in 

exchange for an aggregate amount in cash determined in 

accordance with the following purchase prices (listed in Exhibit B 

to the Purchase Agreement):

a. The Purchase Price shall be calculated by adding the total 

price of all Certificates.

b. The price for each Certificate shall be individually 

determined by multiplying the net weight of the precious 

metal underlying that Certificate by a per-ounce price which 

will be set at 99% of the futures market settlement price as of 

the Closing date for the applicable metal for the forward 

months listed below:

(i) Gold=April price

(ii) Silver=May price

(iii) Palladium=June price

(iv) Platinum=April price

(v) Copper=May price

2. Jefferies will reserve 1% of the futures market settlement price for 

its expenses associated with the bulk purchase of the Certificates. 

Because the 1% will be taken off the underlying commodities’ 

price for a future month, which is generally higher than the current 

trading price, the 1% amounts to less than 1% off of the current 

prices for all Certificates.1

3. The sale of the Certificates to Jefferies shall be made free and clear 

of all liens, claims, charges, security interests, and other 

encumbrances, except for any created by Jefferies.

 

1

“At current market prices, the sale of the Certificates to Jefferies will yield approximately $14,500,000 for 

MFGI’s former commodities customers—a value that is over 99% of the aggregate current futures value of the 

precious metals underlying the Certificates at the time of Closing.” Motion, ¶ 21.

2

See 17 C.F.R. § 1.25; COMMODITIES FUTURES TRADING COMMISSION, Registration of Intermediaries, 

http://www.cftc.gov/IndustryOversight/Intermediaries/registration (last visited Apr. 4, 2012); COMMODITIES 

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The sale of the Certificates is dependent upon the Court’s approval of the Transaction; if the 

Court denies the Motion, the Purchase Agreement will terminate automatically. Further, “the 

Purchase Agreement provides that if the Trustee, on behalf of MFGI, disposes of any Certificates 

prior to the Closing, only the remaining Certificates will be subject to the Purchase Agreement.” 

Motion, ¶ 20. This means that if any customer still wishes to receive all or part of his or her pro

rata distribution in the form of Physical Customer Property, he or she can presumably still do so 

by posting the 28% deposit prior to the closing date of the proposed Transaction without 

jeopardizing the Transaction.

B. Legal Standard for Section 363 Sales

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

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

U.S.C. § 363(b)(1). Bankruptcy Rule 6004(f)(1) provides that “[a]ll sales not in the ordinary 

course of business may be by private sale or by public auction.” 

Although not specified by section 363, the Second Circuit requires that transactions under 

section 363 be based on the sound business judgment of the debtor or trustee. See, e.g., In re 

Chateaugay Corp., 973 F.2d 141 (2d Cir. 1992); Comm. of Equity Sec. Holders v. Lionel Corp. 

(In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983). Generally, “[w]here the debtor 

articulates a reasonable basis for its business decisions (as distinct from a decision made 

arbitrarily or capriciously), courts will generally not entertain objections to the debtor’s 

conduct.” In re Johns-Manville Corp., 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). If a valid 

business justification exists, then a strong presumption follows that the agreement at issue was 

negotiated in good faith and is in the best interests of the estate; the burden of rebutting that 

presumption falls to parties opposing the transaction. See In re Integrated Res., Inc., 147 B.R. 

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650, 656 (S.D.N.Y. 1992). Once a court determines that a sound business justification exists, the 

court must determine whether (i) the debtor has provided all interested parties with adequate and 

reasonable notice, (ii) the sale price is fair and reasonable, and (iii) the purchaser is proceeding in 

good faith. See In re Del. & Hudson Ry. Co., 124 B.R. 169, 176 (D. Del. 1991). 

Additionally, section 363(f) allows a debtor to sell property of the estate “free and clear 

of any interest in such property of an entity other than the estate,” if (1) applicable 

nonbankruptcy law allows, (2) such entity consents, (3) such interest is a lien and the price at 

which such property is to be sold is greater than the aggregate value of all liens on such property, 

(4) such interest is in bona fide dispute, or (5) such entity could be compelled to accept a money 

satisfaction of such interest. See 11 U.S.C. § 363(f)(1)-(5). Satisfaction of any of those 

requirements suffices to permit the sale of the property free and clear of liens and interests. See 

In re Dura Automotive Sys., Inc., 2007 LEXIS 2764, at *264 (Bankr. D. Del. Aug. 15, 2007).

C. The Arguments of the Parties

1. The Trustee's Position

The Trustee states that he believes that the proposed Transaction reflects his sound 

business judgment and is in the best interests of the estate, former customers, and creditors. 

Motion, ¶ 13. The Trustee believes that “[t]he Transaction represents the best available 

opportunity for the Trustee to liquidate the remaining Physical Customer Property under his 

control in order to complete pro rata distributions to the Physical Property Customers in 

accordance with 17 C.F.R. §§ 190.02(f)(2) and 190.08(d), and the mandates of this Court’s Third 

Bulk Transfer Order.” Id. ¶ 21. 

In accordance with the Third Bulk Transfer Order, the Trustee states that his 

professionals have reached out to every physical property customer individually and made 

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arrangements with that individual for pro rata distribution of property. Id. ¶ 17. Some

customers chose to post a 28% deposit of the value of their property in order to receive their 

physical property; others chose to receive their pro rata distribution of their physical property 

partially or entirely in the form of cash, once some or all of their physical property has been 

liquidated by the Trustee. Id. In sum,

[i]n light of the Trustee’s mandate to liquidate the remaining 

Physical Customer Property pursuant to 17 C.F.R. §§ 190.02(f)(2) 

and 190.08(d) and this Court’s Third Bulk Transfer Order, and the 

fact that all Customers have been given ample opportunity to 

receive part or all of their Physical Customer Property in 

satisfaction of their pro rata distribution, the Trustee does not 

believe that the Certificates are subject to any liens, claims, or 

encumbrances.

Id. ¶ 23.

The Trustee also states that his professionals, working with the CME, solicited 

opportunities to liquidate the remaining Physical Customer Property, but Jefferies presented the 

only meaningful offer to do so. Id. ¶¶ 17, 21. In light of that fact, the Trustee does not believe 

any higher or better offers exist. Id. ¶ 21; Siegel Decl. ¶¶ 5-6. The cash received in exchange for 

the transfer of the Physical Customer Property will be used to pay 72% pro rata distributions for 

those customers who opted to wait on liquidation of Physical Customer Property. Motion, ¶ 17. 

The Trustee reports that both the Commodity Futures Trading Commission (“CFTC”) and the 

Securities Investor Protection Corporation (“SIPC”) support the proposed Transaction, id. ¶ 18,

and asserts that the proposed sale of the Certificates to Jefferies is the product of arm’s length, 

good-faith negotiations between the Trustee and Jefferies, as each party was represented during 

the negotiations by counsel, id. ¶ 26.

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2. The Hamann Objection

In his Objection, Hamann “contest[s] trustee’s right to sell an asset titled to Paul Hamann, 

with no liens.” Hamann Objection, The Motion, Point 2. Hamann argues that the Motion should 

not be applied to his Physical Customer Property, stating that he “does not believe that the 

Trustee can show that MF Global had clean and clear title to the warehouse receipts on October 

20, 2011.” Id., Preliminary Statement, Point 17. In support of that assertion, Hamann “believes 

that the CME Group print screens, will show that the Customers of MF Global had clean titles, to 

all their warehouse receipts (Securities), with no liens.” Id. at Point 18. Hamann also states that 

he “has cashed/cancelled checks showing that he paid, in full, for the Securities that the Trustee 

is planning on selling, with their motion,” id., Factual Background, Point 3, and that he “has 

securities ‘electronic warrants’ showing his ownership rights to the Palladium in this motion,” id. 

at Point 4. 

Hamann implies that his accounts qualify as securities accounts, and not commodities

accounts, and believes that the accounts should be insured by SIPC. He states that “SIPC’s 

intentions appear to have deceived commodity account holders at MF Global by placing the 

‘SIPC member’ on all the commodity account statements,” and that he “used REASONABLE 

RELIANCE, that SIPC was protecting his brokerage account with CASH and Securities because 

SIPC Member was printed on his account statement.” Id. at Points 13 & 14.

Pursuant to the Third Bulk Transfer Order, Hamann deposited $28,430.56 with the 

Trustee in order to receive full distribution of four warehouse receipts for palladium 

(representing 28% of the value of the physical property Hamann wished to receive). Id. at Point 

7. He states that the issues that remain are the control of a fifth warehouse receipt, his

$28,430.56 deposit, and $6,555.77 in cash from his “SIPC” account. Id.

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In the Omnibus Reply, the Trustee points out that MFGI was a joint broker-dealer 

(dealing in both securities and commodities) and a registered commodities futures commission 

merchant (“FCM”), and it is undisputed that Hamann’s property was held in an FCM account at 

MFGI; therefore, Hamann’s property is not entitled to SIPA securities customer protection. 

Omnibus Reply, ¶ 4. In support of that assertion, the Trustee cites 17 C.F.R. 

§ 190.08(a)(1)(i)(C), which provides that in the event of an FCM liquidation, all commodity 

customer property, including warehouse receipts, is subject to pro rata distribution by account 

class. Id.

D. The Trustee Has Established A Legal and Factual Basis To Sell the Remaining 

Physical Customer Property

The Court finds that the Trustee has articulated a valid business justification for the 

liquidation of Physical Customer Property. The Motion represents the final step in complying 

with the Court’s Third Bulk Transfer Order. The Court finds that the Trustee has provided all 

interested parties with adequate and reasonable notice, (ii) the sale price is fair and reasonable, 

and (iii) the purchaser is proceeding in good faith. The Trustee has worked individually with 

physical property customers and attempted to make distributions pro rata according to the 

customers’ wishes, within the applicable statutory and regulatory requirements. The Trustee 

made sufficient attempts to secure a buyer for the bulk transfer of remaining physical property 

and has solicited the highest and best (albeit only) offer; indeed, no party has disputed otherwise.

Regarding the Hamann Objection, it is important to note that futures contracts and 

options on futures contracts must be executed on or subject to the rules of a commodity 

exchange. Individuals cannot trade directly on an exchange; rather, only those persons or firms 

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registered with the CFTC as an FCM or an Introducing Broker may trade on an individual 

customer's behalf.2 MFGI was a registered FCM. 

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

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

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

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

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

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

discussed below, 17 C.F.R. Part 190.

The CFTC has enacted regulations to guide trustees and assist courts in implementing the 

CEA and subchapter IV of title 11 of the Bankruptcy Code. See 17 C.F.R. § 190 et seq. Those 

regulations: (1) define what constitutes customer property, see id. § 190.08; (2) establish a 

system of customer classes and account classes, which ensures a fair and orderly process of pro 

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

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

Section 190.08 specifies fifteen categories of “customer property.” “Specifically 

identifiable property” (“SIP”) is a class of property defined in section 190.01(kk); and sections 

190.01(kk)(1) and (3) include those warehouse receipts that can be identified on the books and 

records of the debtor at the time of the petition for relief, or October 31, 2011, in the case of 

 

2

See 17 C.F.R. § 1.25; COMMODITIES FUTURES TRADING COMMISSION, Registration of Intermediaries, 

http://www.cftc.gov/IndustryOversight/Intermediaries/registration (last visited Apr. 4, 2012); COMMODITIES 

FUTURES TRADING COMMISSION, Futures Commission Merchants (FCMS) & Introducing Brokers (IBS), 

http://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/index.htm (last visited Apr. 4, 2012). 

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MFGI.

3

 There is no requirement that MFGI have title to or an equitable or beneficial interest in 

the SIP for them to be considered customer property. 

Given the broad definition of “customer property” and the fact that Hamann’s warehouse 

receipts were identified on the books and records of MFGI as of October 31, 2011, Hamann’s 

Physical Customer Property is considered to be property of the MFGI estate, under the Trustee’s

control, and therefore, eligible for distribution pursuant to the Part 190 regulations. Any 

evidence of title that Hamann has presented to the Court, therefore, carries little weight. In an 

FCM liquidation, such as in this case, section 190.08 requires the Trustee to distribute all former 

commodities customer property within the estate of MFGI, including warehouse receipts, to 

customers pro rata by customer and account classes. See generally HSBC Bank, USA, N.A. v. 

 

3

Sections 190.01(kk)(1) and (3) define “specifically identifiable property” as:

(1) With respect to the following property received, acquired, or held 

by or for the account of the debtor from or for the account of a customer to 

margin, guarantee or secure an open commodity contract:

(i) Any security which as of the filing date is:

(A) Held for the account of a customer;

(B) Registered in such customer's name;

(C) Not transferable by delivery; and

(D) Not a short term obligation; or

(ii) Any warehouse receipt, bill of lading or other document of title 

which as of the filing date:

(A) Can be identified on the books and records of the debtor as held for 

the account of a particular customer; and

(B) Is not in bearer form and is not otherwise transferable by delivery.

. . . .

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

documents of title, or physical commodities received, acquired, or held by or for 

the account of the debtor for the purpose of making or taking delivery or 

exercise from or for the account of a customer, any such document of title or 

commodity which as of the entry of the order for relief can be identified on the 

books and records of the debtor as received from or for the account of a 

particular customer as held specifically for the purpose of delivery or exercise.

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Fane (In re MF Global Inc.), No. 11-2924, 2012 WL 726640, at * 3-5 (Bankr. S.D.N.Y. Mar. 7, 

2012).4

Furthermore, Hamann’s property is not entitled to protection or insurance under SIPA. 

Property qualifying for protection or insurance under SIPA is defined differently from property 

held by an FCM for its commodities customers. Protection under SIPA requires that the property 

must belong to a “customer,” defined as “any person . . . who has a claim on account of 

securities received, acquired, or held by the debtor in the ordinary course of its business as a 

broker or dealer from or for the securities accounts of such person . . . .” SIPA § 78lll(2)(A). 

Although SIPA also states that the definition of “customer” can include a person who has a claim 

against the debtor for “futures contracts” and that “customer property” can include a “futures 

contract,” in order to qualify as a securities customer, the contracts in question must be held in a 

specific type of securities account, that is, a “portfolio margining account.” Id. §§ 78lll(2)(B)(ii), 

(4)(D). Therefore, to qualify for SIPA protection, a customer’s property must meet the definition 

of “security,” and that property must be held in a securities account. 

First, Hamann presented no evidence that his property was held in a securities account at 

MFGI, including a portfolio margining account. Second, SIPA expressly defines “security” to 

exclude “any commodity or related contract or futures contract, or any warrant or right to 

subscribe to or purchase or sell any of the foregoing,” except as specifically provided for 

elsewhere within section 78lll. SIPA § 78lll(14). Hamann’s warehouse receipts fall under the 

definition of a commodity under the CFTC Regulations and not as a security.

 

4 Hamann’s situation differs from that of Jason Fane, discussed in the HSBC opinion. Fane’s property was 

not identifiable on MFGI’s books and records as of October 31, 2011, as his request for transfer of his warehouse 

receipts had been received and executed prior to that date; therefore, Fane’s property could not be considered 

property of the MFGI estate and was not eligible for distribution pursuant to the SIPA liquidation. Id. at *5. 

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CONCLUSION

For the reasons explained above, the Court OVERRULES the Hamann Objection and 

GRANTS the Motion. A separate order will be entered.

Dated: April 6, 2012

New York, New York.

_____/s/Martin Glenn_______

 MARTIN GLENN

United States Bankruptcy Judge

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