NEW YORK (Reuters) - The legal team unwinding MF Global Holdings’ MFGLQ.PK broker-dealer pocketed more than $17 million in legal fees in the first four months of the bankruptcy, court filings show.
The team from law firm Hughes Hubbard & Reed, led by trustee James Giddens, has been paid from the estate of MF Global Inc, the broker-dealer unit, but not from assets that may belong to customers, according to a filing on Monday in U.S. Bankruptcy Court in Manhattan.
Giddens is seeking court approval for the fees, a requirement for trustees appointed to wind down broker-dealers. The fees cover the period from Giddens’ appointment on October 31 through February 29. Fees incurred since then have not been submitted to the court.
Courts can reject fees as unreasonable, duplicative, unnecessary or otherwise improper. If fees were rejected after being paid, Hughes Hubbard would likely credit the total toward future bills rather than give money back, Giddens’ spokesman, Kent Jarrell, told Reuters in April.
Giddens’ team has billed for roughly $20.1 million for the four-month period, but is withholding 15 percent of the total under an agreement with the Securities Investor Protection Corp, an insurance fund for securities customers that taps trustees like Giddens to liquidate failed brokers.
Giddens’ own rate is about $894 an hour, which incorporates a 10 percent reduction from his normal rate under the agreement with SIPC, according to the filing. Giddens billed 424 total hours in the four months, the filing shows.
Some of the key partners on Giddens’ team have billed more hours. James Kobak, who charges the same rate as Giddens, put in 749 hours, while bankruptcy partner Christopher Kiplok logged about 675 hours at $691.55 per hour.
The full team, which includes nearly 130 lawyers and another 28 paralegals, has racked up more than 43,000 hours, according to the fee submission.
MF Global declared bankruptcy in October, revealing a huge gap in the accounts of its commodities trader customers. Giddens, charged with recovering as much money as possible for customers, said the hole resulted from the improper use of customer cash to cover a liquidity strain as the firm sank.
He has estimated the shortfall at $1.6 billion.
The U.S. Justice Department’s bankruptcy trustee program is scrutinizing legal fees. It held a hearing on Monday in Washington to get feedback on proposed changes such as asking bankruptcy lawyers to work off a budget.
Fees concerning MF Global, where frustrated customers await the return of their own funds, are a particularly sensitive topic. Early in the case, customers criticized Giddens for high rates charged in the liquidation of Lehman Brothers’ LEM.MX broker-dealer, which he also is overseeing, expressing concern he would drag out MF Global’s wind-down for his own benefit.
Jarrell maintained that Giddens “always has the interest of the former customers in mind when it comes to cost and efficiency,” and has agreed not to bill for expenses usually covered by a bankrupt firm’s estate, like meals and taxi rides.
Customer advocates lately have shifted their criticism away from Giddens specifically, and onto the overall compensation system under U.S. bankruptcy laws.
“The dude deserves to get paid and he’s done a good job,” said James Koutoulas, leader of advocate group the Commodity Customer Coalition. “But the system for bankruptcy fees is ridiculous. Bankruptcy lawyers are probably the most overpaid group of lawyers in the country. I’d feel a little more comfortable if it was around, say, $12 million.”
Giddens’ reported fees are higher than the ones he turned in after about the same amount of time in the Lehman wind-down, when his team reported about $14.26 million. At that point, Giddens’ hourly rate was about $787, including a 10 percent reduction under an SIPC agreement. The rate has increased over time to mirror gradual increases in Hughes Hubbard’s billing rates, Jarrell said.
The firm has sought a total of nearly $200 million in fees in roughly three-and-a-half years in Lehman, and has been approved so far for about $172 million.
According to Giddens’ court filing, the man hours have included tasks as grand as executing the payback of billions of dollars to MF Global customers, and as minor as making sure customers were notified of public meetings.
The brokerage liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.
Reporting by Nick Brown in New York; Additional reporting by David Ingram in Washington; Editing by Dale Hudson