Former customers of MF Global Holdings Ltd drew new hope for a quicker return of frozen funds on Tuesday, as the bankruptcy trustee secured more assets from a Chicago bank and the CME Group Inc expanded a financial guarantee.
Meanwhile, Jon Corzine, who has been publicly silent since resigning as MF Global's chief executive on November 4, was asked to appear before Congress next month to explain how his futures brokerage collapsed into bankruptcy so fast.
The request was made as U.S. Bankruptcy Judge Martin Glenn at a hearing in Manhattan approved the appointment of a bankruptcy trustee to oversee what remains of MF Global, wresting control from the remnants of its management team.
James Giddens, the trustee liquidating MF Global's broker-dealer unit, said he expects to soon recover $1.3 billion of assets from Bank of Montreal's Harris Bank unit, but these funds are not the funds missing from customer accounts.
It is estimated that there is a $1.2 billion shortfall in customers' accounts. Giddens said the funds from Harris Bank will go toward repaying some customers who had feared the loss of more than 20 percent of their accounts.
CME, meanwhile, more than doubled the size of a fund to help expedite the return of client cash to $550 million from $250 million. It also said it doubted that the shortfall was as large as $1.2 billion.
That figure is a preliminary number, James Kobak, a lawyer for Giddens, told Glenn at the hearing. The apparent shortfall could go up. We hope it could go down as well. But that was the best information at the time.
MF Global filed for Chapter 11 protection on October 31 after the New York-based company revealed it had made a $6.3 billion bet on European sovereign debt.
The revelation worried investors, credit rating agencies and trading partners, and resulted in a liquidity crunch.
The $1.3 billion of cash, securities and foreign currencies recovered from Harris would be pooled with $3.7 billion of other assets already under Giddens' control -- all segregated accounts in U.S. depositories -- for eventual distribution to customers, spokesman Kent Jarrell said.
The combined $5 billion total would be close to CME's initial $5.45 billion estimate for all MF Global segregated funds requirements, in theory leaving customers out less than 10 percent of what they might otherwise expect to recover. A $520 million disbursement from those funds is underway now.
Jarrell disputed the CME estimate. We don't know whether that's the (final) number, he said. We'll see what it is when this is all over and we've fully reconciled customer claims.
Separately, the CME moved to quell renewed criticism that it has done too little to help customers with billions of dollars of cash stuck in MF Global accounts.
The protection of our customers and the integrity of all futures markets continue to be our two chief concerns, CME Chief Executive Craig Donohue said in a statement.
CME said the $550 million guarantee would allow a return of $4 billion of the $5.5 billion meant to be held in segregated accounts, including all $2.5 billion at CME Clearing.
Experts have said customers should be first in line to recover funds from the bankruptcy, even if the missing customer cash is not discovered.
TRUSTEE TO PROVIDE OVERSIGHT
MF Global and JPMorgan Chase & Co, one of the company's main lenders, had asked Glenn to authorize the appointment of a trustee for the parent company. No one has yet been named to the role.
In approving the request, Glenn also authorized JPMorgan to pledge $26 million of collateral, up from $8 million, to keep MF Global operating in bankruptcy.
A trustee is often named to serve the bankruptcy estate's best interest, or when company executives are suspected of wrongdoing. Corzine, a former New Jersey governor and chief of Goldman Sachs & Co, has not been accused of wrongdoing.
Bradley Abelow, MF Global's chief operating officer, was also asked to testify on December 15 before the House Financial Services Subcommittee for Oversight and Investigations, along with Corzine and several top U.S. regulators.
Lawyers for Corzine and Abelow were not immediately available for comment.
Others invited to testify were Robert Cook, director of the U.S. Securities and Exchange Commission's division of trading and markets; Gary Gensler, who heads the Commodity Futures Trading Commission; and William Dudley, president of the Federal Reserve Bank of New York.
Gensler and SEC Chairman Mary Schapiro are also slated to appear on December 1 before the Senate Agriculture Committee.
Regulators are trying to determine what happened to the missing money, and whether MF Global may have mixed customer funds with its own, a major violation of industry rules. Federal prosecutors are also looking into the matter.
At Tuesday's hearing, Glenn approved the adoption of a parallel claims process for securities customers and commodities customers of the broker-dealer, MF Global Inc.
He declined to approve the creation of an official committee of commodities customers, but urged Giddens to keep those customers in the loop. If there's 38,000 separate voices, they're going to drown each other out, Glenn said.
The judge also advised Giddens to make it a priority to focus on small claims from people who are really suffering.
Nonetheless, some customers complained to Glenn about the process, fearing it will take too long to get all, or even most, of their money back.
It's going to be a very slow and winding process, said John Roe, a spokesman for the Commodity Customer Coalition, which represents more than 7,000 former MF Global customers. Ultimately it will come down to what actually happened to the money.
JPMorgan is also expected to soon announce it will pay 25 million pounds (US$39.1 million) for MF Global's 4.7 percent stake in the London Metal Exchange, making it that exchange's largest shareholder, two people familiar with the matter said.
An announcement could come this week. JPMorgan already has a 6.2 percent stake in the exchange. A sale could leave more money for MF Global creditors.
(1 British pound = US$1.563)
(Reporting by Nick Brown, Matthew Goldstein, Lauren Tara LaCapra, David Sheppard and Jonathan Stempel in New York; Christopher Doering in Washington, D.C.; and Melanie Burton and Douwe Miedema in London; editing by Carol Bishopric)