January 11, 2012 / 12:47 AM / 6 years ago

MF Global Holdings trustee urges creditors' priority

(Reuters) - The bankruptcy trustee for MF Global Holdings Ltd MFGLQ.PK said that entity’s creditors deserve to rank higher in the pecking order for repayment on some claims than customers of its brokerage unit.

In a filing late Monday with the bankruptcy court in Manhattan, trustee Louis Freeh said the holding company has “substantial intercompany claims” against the brokerage unit MF Global Inc, stemming from intercompany loans it made to that unit.

Freeh said such loans are not customer assets, and that any recoveries tied to such loans belong to creditors of the parent company, and should not be diverted to customers of the brokerage unit.

He said he is concerned an “inappropriate interpretation” of relevant statutes could prompt James Giddens, the trustee overseeing the broker-dealer unit, to deny creditors a right to recover from property that was never deposited by customers.

Giddens and regulators are trying to account for hundreds of millions of dollars missing from MF Global Inc accounts, a shortfall that has been estimated at $1.2 billion.

Freeh said all parties should be allowed to advance their positions concerning recoveries once the scope of any shortfall is determined.

Once run by former New Jersey governor Jon Corzine, MF Global filed for bankruptcy on October 31, 2011 after customers and trading partners were spooked by its exposure to European sovereign debt.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

The cases are In re: MF Global Holdings Ltd et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059; and In re: MF Global Inc in the same court, No. 11-02790. (Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz)

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