Hedge Funds

Customers of bankrupt broker-dealer MF Global Inc. have been calling the Washington offices of the Securities Investor Protection Corp. today asking for their money, a lawyer for the corporation said.

“What customers ask is, ‘When am I getting my money?’” said Kevin Bell, senior associate general counsel of the government-created entity, which is overseeing the liquidation of the brokerage formerly run by Jon Corzine. “You tell them to sit tight, and start gathering their information so they can file claims. Canceled checks, trade confirmations, account statements.”

Websites will be put up by SIPC and trustee James Giddens’s law firm, Hughes Hubbard & Reed LLP, and claim forms will be mailed to customers, he said. In the Lehman Brothers Inc. brokerage liquidation, also handled by Giddens as trustee, it took about 30 days to get claim forms out “because of the complexity,” Bell said. The Lehman Brothers Holdings Inc. unit has been in liquidation since 2008 after its parent filed for bankruptcy with $639 billion in assets.

“This is like a mini-Lehman,” he said. Claim forms were mailed about 17 days after con man Bernard Madoff’s firm went into liquidation in 2008, Bell said. “We have to get control of the books and records. We have to get the names off the books and records.”

When broker-dealers are liquidated, customer accounts often go to other firms, sometimes in “bulk transfers,” Bell said. Barclays Plc took over accounts from Lehman’s brokerage, giving 72,000 brokerage customers access to $40 billion in frozen assets.

European Debt

MF Global Holdings Ltd., the broker-dealer’s parent, said it failed after getting margin calls spurred by disclosure of more than $6 billion of European government debt investments. It told regulators that client accounts had “deficiencies,” the Commodity Futures Trading Commission and Securities and Exchange Commission said yesterday.

The New York-based parent company broke rules about keeping clients’ collateral separate from its own accounts, futures exchange CME Group Inc. said today.

Giddens said yesterday he is “taking steps” to protect customers and set up an “orderly and fair” process to satisfy their claims. He and his team plan to be on the company’s premises to provide oversight, he said in a statement yesterday. SIPC had lawyers in New York and has “flown in” an operations vice president to work with Giddens, Bell said.

“The trustee is trying to get a clamp on the assets,” Bell said. “We’re looking at the next 10 days being very hectic.” He declined to comment on any missing funds.

Liquidation Approved

A judge approved the liquidation of MF Global Inc. yesterday after SIPC said the broker-dealer might not be able to meet its obligations to customers who have accounts with the company.

“The defendant has failed or is in danger of failing to meet its obligations to its customers,” SIPC, which compensates customers for as much as $500,000 of their losses, said in court papers. “Specifically, the defendant is unable to meet its obligations as they mature.”

SIPC’s proceeding against MF Global is being transferred to U.S. Bankruptcy Court in Manhattan because MF Global consented to SIPC’s application to liquidate it, according to Josephine Wang, general counsel for SIPC.

MF Global Holdings listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers. The company described itself as “one of the world’s leading brokers in markets for commodities and listed derivatives,” providing access to more than 70 exchanges.

Fed Relationship

MF Global was one of about 20 dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York, before the Fed said yesterday it ended that relationship.

SIPC, created by Congress in 1970 after brokerage failures in the late 1960s, gets money from brokerage firms to pay investors. Chartered to guard investors against broker theft or brokerage failure, SIPC is overseen by the SEC.

The lawsuit is Securities Investor Protection Corp. v. MF Global Inc., 11-cv-7750, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Source: Bloomberg Business Week