By Eleazar David Meléndez: Subscribe to Eleazar's RSS feed
November 11, 2011 6:49 PM EST
As was bound to happen, the vast majority of employees at now-bankrupt broker-dealer MF Global were laid off Friday, a scene that bookends one of the saddest chapters in the once-mighty firm's denouement.
James W. Giddens, the bankruptcy lawyer who has been tasked with defending the interests of certain creditors as MF Global's bankruptcy trustee, made the announcement to employees Friday. Suddenly, 1,066 people found themselves out of work, mostly in the Chicago area. Final paychecks will be sent November 15 and there will be no severance, setting up thousands of families for a Dickensian Thanksgiving Day dinner of food-stamp-bought turkey brined in tears.
As wretched and unpopular as the decision to send over a thousand breadwinners into the street, it's likely just the beginning of unpopular decisions for Giddens.
Compiled for your reading pleasure is a list of seven unpopular actions we'll probably see the MF Global liquidation trustee undertake:
1. Throw the little people under the bus
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As a trustee appointed to ensure the execution of the Securities Investor Protection Act within the context of a large bankruptcy, James Giddens finds himself practicing an arcane branch of law few others have handled before. His mandate, first and foremost, is to protect the assets held in securities trading accounts, then make sure creditors of all kinds get paid.
At some point he will have to sort out the order in which bondholders, banks, vendors and employees will get paid. A major sticking point is sure to be the fate of customers with assets in commodity and futures trading accounts (more of that in a bit).
Regardless, the lowest of the low in terms of unsecured creditors are generally the smaller vendors: the people who made MF Global's TV ads, managed their taxes, ran human resources workshops and sold it special software. Those people, many of them small companies, are unlikely to see themselves included in any final disbursement.
As for the teacher's retirement funds and small-time investors, among others, that were MF Global's stockholders: forget it.
2. Pay the big banks (and himself) first
In making decisions on how to divide whatever assets he is able to recover, Giddens will consult the various creditors who are actually owed. Creditors with larger claims will bandy together to hold even greater clout, forming a creditor's committee.
This is all par for the course in bankruptcy proceedings, and makes a certain sense: Giddens cannot be possibly expected to deal face-to-face with each one of the tens of thousands of creditors, many of them openly emotional about getting their money back. The sinister aspect of this arrangement, however, starts to show up when the list of those large creditors becomes public. JPMorgan, M&T Bank, Bank of America, and $16 billion-dollar hedge fund Elliott Management Corp. are in the five-member committee. Technology provider Caplin Systems is thrown in for good measure.
Besides having the interests of these big institutions, Giddens, of course, has to think of himself. His boss, Manhattan white shoe law firm Hughes, Hubbard and Reed is no charity: Giddens' personal billing rate is reportedly $980 per hour. He will likely take a bit of a pay cut (10 percent is customary) and give up the usual custom of billing the daily steak dinner and chauffeured ride home to the client, but otherwise will make sure to get paid first. Indeed, as of November 3rd, just a few days after the bankruptcy, he was already asking the courts to approve his invoice.
3. Pick winners and losers
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