Customers of MF Global's broker-dealer unit say at least $120 million in insurance policies for the company's executives should instead go toward filling a massive hole in their accounts.

At least four customer groups on Tuesday objected to a stipulation that would allow MFG Assurance Co Ltd, MF Global's insurer subsidiary, to continue to pay any defense costs that arise from MF Global's collapse, either on behalf of the company itself or its executives.

Customers of the broker-dealer are still missing roughly 28 percent of the value of their accounts -- an estimated $1.2 billion -- that the company used to fund corporate transactions in the days leading up to its October 31 collapse, according to a report Monday from James Giddens, the trustee liquidating the brokerage.

The customers said $190 million in insurance policies, at least $120 million of which cover the period surrounding the collapse, are assets of the bankruptcy estate and should go to customers.

The policies' beneficiaries are undoubtedly the primary wrongdoers that caused the $1.2 billion shortfall in customer funds, a customer group led by Paradigm Global Fund said in a court filing.

Executives of MF Global, including former CEO Jon Corzine, are facing a slew of class action allegations over their alleged role in the company's downfall.

Customer Sapere Wealth Management said the policies would fund the defense of Corzine, also the former governor of New Jersey, who resigned from MF Global in November.

Court filings from MFG Assurance did not reveal whether Corzine is one of the executives covered by the policies, and lawyers for Corzine and MFG Assurance did not respond to requests for comment.

An attorney for Louis Freeh, the court-appointed trustee controlling the assets of the MF Global parent, declined to comment but said Freeh would file a response to customer objections.

In previous court papers, Freeh said the policies are not assets of the bankruptcy estate and can therefore continue to fund defense costs.

A hearing on the matter is scheduled for Thursday.

Customers said the stipulation to keep paying out on the policies, signed by Freeh and MFG Assurance, gives no details on who the insurance covers.

The stipulation also gives no detail on how the policies were procured, Sapere said.

Citing Giddens' Monday report, which chronicled widespread use of customer funds for corporate needs, Sapere said the policies might have been paid for using customer money.

Commodities customers have not been afforded the opportunity to conduct discovery into the sources of ... the policies, Sapere said.

The case is In re MF Global Holdings Ltd, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.

(Editing by Muralikumar Anantharaman)