WASHINGTON (Reuters) - Customers of the failed futures brokerage MF Global got mixed signals on Wednesday about their chances of recovering all of a $1.6 billion shortfall after two trustees involved in the firm’s liquidation offered different outlooks about their chances of success.
In prepared testimony before the Senate Agriculture Committee, former FBI Director Louis Freeh — who is responsible for winding down MF Global’s MFGLQ.PK parent company — told lawmakers he is quite confidence that “all of the customers of MF Global Inc eventually will be made whole.”
But James Giddens, the trustee for the broker-dealer unit tasked with recovering customers’ missing funds, offered a less rosy picture, saying legal obstacles to recovering the money still remain.
“We very much would like to pay every customer 100 percent, however, it will be a time consuming, difficult uphill battle,” Giddens told the Senate panel.
“We appreciate Mr. Freeh’s apparent support and confidence in our ability to collect and allocate additional substantial assets and certainly that remains our singular focus.”
Wednesday’s congressional hearing was convened to examine both the collapse of MF Global and Peregrine Financial Group, a smaller Iowa-based futures brokerage that filed for bankruptcy July 10 after its founder Russell Wasendorf Sr. attempted suicide and left a note where he admitted to running a nearly 20-year fraud by forging bank documents.
More than $200 million of customer money is missing at Peregrine, according to regulators.
Wasendorf was arrested days after his suicide attempt on charges of lying to regulators. He is also facing a civil lawsuit by the Commodity Futures Trading Commission.
The CFTC and criminal authorities, however, have still not filed any charges in connection with MF Global’s collapse back in October and the loss of customer money.
“The failure of two futures brokerages in a nine-month time span has deeply wounded investor confidence in the futures markets,” said Senate Agriculture Committee Chairman Debbie Stabenow.
“We have heard from farmers and businesses who, after MF Global collapsed, opened accounts at Peregrine. For these folks, lightning really does strike twice in the same place, and they rightfully want to know why. I want to know why.”
Giddens told lawmakers on Wednesday he expects to soon return to MF Global customers who traded on U.S. exchanges 80 percent of their accounts, but that far less money so far has been returned to those who traded on foreign exchanges.
He said he is actively pursuing what “may be valid claims” against directors and officers, including former Chief Executive Jon Corzine and is also continuing “active discussions” with JPMorgan Chase & Co (JPM.N), the bank that was holding customer money which was transferred overseas.
When asked by lawmakers whether or not Corzine, a former U.S. senator and governor of New Jersey, knew about the transfer of customer money, Giddens said he felt there was evidence pointing to the brokerage’s executive suite.
“I think the preponderance of the evidence indicates that management, senior management at MF Global was aware of the liquidity crisis and was aware that customer funds toward the end were being utilized to cover other costs in the firm,” Giddens said.
Bankruptcy claims for sale by MF Global customers had risen to around 90 cents on the dollar by early June, reflecting growing optimism that most cash would eventually be restored, although many expect it will take years to do so.
Reporting by Alexandra Alper, Aruna Viswanath and Sarah N. Lynch in Washington; additional reporting by Jonathan Leff in New York; Editing by Maureen Bavdek and Tim Dobbyn