MF Global judge OKs payout; Freeh says no bonuses

By Jonathan Stempel, Dave Clarke and Alexandra Alper
Tue Apr 24, 2012 7:23pm EDT
n">(Reuters) - A federal judge on Tuesday authorized the trustee liquidating MF Global Holdings Inc's (MFGLQ.PK) brokerage unit to distribute as much as $685 million to customers whose accounts had been frozen when the futures brokerage went bankrupt.
The payout authorized by U.S. Bankruptcy Judge Martin Glenn in Manhattan is on top of the more than $4 billion that the trustee James Giddens has already distributed, according to the trustee's spokesman Kent Jarrell.
It includes as much as $600 million to be paid to U.S. exchange customers, up to $50 million for customers who traded on non-U.S. exchanges, and up to $35 million for customers who held physical property such as gold bars.
Jarrell said the payout leaves Giddens about $750 million in reserve to cover potential claims by other parties, including other MF Global affiliates.
It may allow customers who traded on U.S. exchanges to recover more than 80 percent of their account values. It also represents a payback of about 10 percent for customers who traded on foreign exchanges.
Glenn approved the payout on the same day Louis Freeh, the former FBI director and now trustee for MF Global's parent company, told Congressional lawmakers he has no plans to pay bonuses to current or former company employees.
Customers had objected to bonuses in the wake of reports that executives including Chief Operating Officer Bradley Abelow, General Counsel Laurie Ferber and Chief Financial Officer Henri Steenkamp might be eligible for them.
These customers consider it unfair to pay bonuses to people they hold in part responsible for MF Global's sudden collapse.
"I want to make it very clear, it was never my intention to pay any bonuses," Freeh told the Senate Banking Committee. He said he needs to retain 15 employees to help manage the bankruptcy and secure a $22 million tax refund.
Once run by Jon Corzine, the former Goldman Sachs (GS.N) chief and New Jersey governor, MF Global filed for Chapter 11 last October 31 amid a liquidity crunch prompted by worries over its $6.3 billion bet on European sovereign debt.
The collapse has prompted a variety of regulatory and congressional investigations, in part focused on an estimated $1.6 billion of customer money that remains missing.
On Monday, the U.S. Judicial Panel on Multidistrict Litigation consolidated more than 20 lawsuits by MF Global shareholders and customers into a single case in Manhattan federal court.
The panel overruled objections by commodities customers who thought their claims should be handled separately. U.S. District Judge Victor Marrero will oversee the combined litigation.
Separately, the National Futures Association, an independent regulator for the commodities and futures industry, in a letter dated Tuesday offered U.S. Attorney Patrick Fitzgerald in Chicago its assistance in probing any potential criminal conduct surrounding MF Global's collapse.
The cases are In re: MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-02790; and In re: MF Global Holdings Ltd., U.S. District Court, Southern District of New York, No. 12-md-02338. The bankruptcy case for MF Global's parent company is In re: MF Global Holdings Ltd et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059.
(Reporting By Nick Brown, Basil Katz and Jonathan Stempel in New York, and Alexandra Alper and Dave Clarke in Washington, D.C.; Editing by Gary Hill)

Judge denies AIG motion in BofA $8.5 billion settlement

The American International Group (AIG) building is pictured in New York, March 24, 2009.
Credit: Reuters/Shannon Stapleton
By Karen Freifeld
NEW YORK | Tue Apr 24, 2012 8:26pm EDT
NEW YORK (Reuters) - A New York judge on Tuesday rejected an effort by AIG Inc (AIG.N) and other objectors to Bank of America Corp's (BAC.N) proposed $8.5 billion mortgage bond settlement to convert the case to a proceeding that may have widened its scope.
New York state Supreme Court Justice Barbara Kapnick, who must decide whether to approve the settlement, denied the motion by AIG and other groups of investors to turn the limited proceeding known as an Article 77 into a broader inquiry known as a plenary action.
Kapnick said at a hearing on Tuesday that she could accomplish what was necessary under the Article 77.
"I really think I have a lot of discretion," she said.
An Article 77 is a special proceeding, limited in scope, that generally is used in run-of-the-mill trust matters. Objectors to the settlement wanted to transform the case into a plenary action for a full hearing.
The settlement would resolve claims from investors in mortgage bonds issued by Countrywide Financial Corp, which was purchased in 2008 by Bank of America.
BlackRock Inc (BLK.N), MetLife Inc (MET.N) and Allianz SE's (ALVG.DE) Pacific Investment Management Co are among 22 institutional investors who agreed to the accord. Other investors have complained the payout is too low.
Kathy Patrick, an attorney for the institutional investors, viewed the judge's decision as a positive step.
"She confirmed the trustee was entitled to proceed under Article 77, which is a summary, expedited form of proceeding," Patrick said after the hearing.
John Moon, an attorney for entities known as Triaxx, which hold unpaid principal of over $2 billion in notes, was not dissuaded by the judge's decision to reject the motion he joined in bringing.
"Whether it's an Article 77 or a plenary action," said Moon, "I view it as winning the battle because the judge implied there would be adequate disclosure of the facts surrounding the settlement."
Kevin Heine, a spokesman for Bank of New York Mellon, declined comment.
The judge asked the parties to work out proposals for providing documents. Objectors to the proposed settlement want wide discovery, while the trustee wants less.
"Everybody's going to get part of what they want," Kapnick said.
Kapnick also heard arguments on whether to allow the attorneys general of New York and Delaware to intervene in the case. She made no decision on that.
American International Group Inc, which has said Bank of America is "drastically underpaying," is one of two big objectors to the settlement. Baupost Group, a Boston-based hedge fund run by Seth Klarman, operating under the name Walnut Place LLC, is the other. A handful of Federal Home Loan Banks are among those seeking broader scrutiny of the deal.
BNY Mellon, acting as trustee for the investors, has said it decided the settlement was in the best interest of the trusts. It believes the judge's approval should be based on whether the trustee's decision was within its reasonable discretion.
The case is In the application of the Bank of New York Mellon, 651786-2011, New York state Supreme Court (New York County."
(Editing by Andre Grenon)