NEW YORK--Two federal judges on Wednesday approved a key
settlement between J.P. Morgan Chase & Co. (JPM) and customers
of bankrupt MF Global Holdings Ltd. that should free up more than
$1 billion for the customers of the defunct brokerage.
U.S. District Judge Victor Marrero and U.S. Bankruptcy Court
Judge Martin Glenn both approved the deal, which calls for J.P.
Morgan to pay $100 million to reimburse customers and back away
from $400 million in claims. Among other things, the deal allows
foreign MF Global customers to begin getting more money back from
the coffers of James W. Giddens, the trustee unwinding MF Global's
brokerage.
"These settlements are effectively the key that unlocks the
rest," said Hughes Hubbard & Reed LLP's James B. Kobak Jr., a
lawyer for Mr. Giddens. Mr. Kobak referred to a hearing earlier in
the case in which MF Global was referred to as a train wreck with
pieces all over the track that had to be cleaned up.
"For customers, this settlement gets the rest of the train back
on the track," Mr. Kobak said. The settlement, he explained, frees
up the payback of money for many of MF Global's U.K. customers.
While Judge Glenn approved a settlement for them earlier this year,
the J.P. Morgan deal frees up the cash that will actually allow
that to be set in motion.
As a result of the settlement, one group of customers that has
already received about 89% of its money back is expected to soon be
up to 94% and more soon after. Foreign options account holders, who
have to this point received less than 20% of their money, will get
up to as much as 65% and possibly more after.
"At the start of this case, it certainly seemed doubtful that
customers would recover what they already have and should recover
in the future," Judge Glenn said in approving the settlement. Mr.
Giddens expects to officially request the allocation of money to
customer funds by September.
Last month, Mr. Giddens said commodities customers who dealt on
U.S. exchanges, with claims of some $5.4 billion, are expected to
recover 96 cents on the dollar, seven cents more than his previous
estimate.
Recoveries for U.S. futures and commodities customers with
accounts overseas, with claims totaling $878 million, will range
from 84 cents to 91 cents on the dollar, he said.
The unusual hearing at the Daniel Patrick Moynihan U.S.
Courthouse in lower Manhattan encompassed both the MF Global
bankruptcy case and a U.S. District Court proceeding before Judge
Marrero, in which former MF Global customers are suing ex-Chief
Executive Jon S. Corzine, other top executives, and accounting firm
PricewaterhouseCoopers LLP over missing funds. J.P. Morgan, a
trustee and custodian for MF Global's brokerage unit, was also a
defendant in that suit. The class-action suits against Mr. Corzine
and the others will continue, a lawyer for the customers said.
While the proceedings have occurred concurrently, this
particular settlement was ordered to be held as one hearing because
of how it crossed over into both matters. Only a separate group of
customers suing Mr. Corzine and the executives objected to the
settlement at the Wednesday hearing, but slight wording changes
assuring them that they'd be able to sue later appeared to
alleviate their concerns.
Mr. Giddens is winding down MF Global's broker-dealer business
for the benefit of customers under the authority of the Securities
Investor Protection Act, which governs the liquidation of failed
brokerage firms.
"I am extremely pleased with the approval of this settlement and
am grateful for the coordination of the courts and the cooperation
of all the parties in this matter," said Mr. Giddens.
The liquidation is separate from MF Global Holdings Ltd.'s
Chapter 11 proceeding. Louis Freeh, a former director of the
Federal Bureau of Investigation who has since stepped down as
trustee of the holding company, also sued Mr. Corzine and other
executives for their role in the collapse.
Led by Mr. Corzine, a former New Jersey governor and Goldman
Sachs Group Inc. (GS) chairman, MF Global went down in October 2011
when customers panicked over the New York firm's large bets on
European debt. The firm's failure exposed what appeared to be a
$1.6 billion shortfall in U.S. customer accounts.
The former executives, including Mr. Corzine, have denied any
wrongdoing in connection with that shortfall. While investors have
filed a number of civil suits against the firm's top brass, no one
has been charged with criminal wrongdoing.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
-Patrick Fitzgerald in Washington contributed to this
article.
Write to Joseph Checkler at joseph.checkler@dowjones.com. Follow
him on Twitter at @JoeCheckler
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