MF Global Holdings, Ltd. (fka MFGLQ)

[TheProfit]

MF Global Trustee Freeh to Allow Extended Probe of Records

The trustee in charge of MF Global Holdings Ltd. (MFGLQ) said he will allow the U.S. government and the trustee unwinding the company's failed brokerage, MF Global Inc., to go further back in their investigation into the company's books concerning segregated funds, which still have a reported shortfall of more than $1 billion.

In a Wednesday filing with U.S. Bankruptcy Court in Manhattan, the trustee, Louis J. Freeh, said he will waive attorney-client privilege and turn over documents and other information about MF Global's segregated accounts from the period of July 1, 2011, until the company's Oct. 31, 2011, bankruptcy filing. Previously, he had agreed to open MF Global's books for the two-week period leading up to its bankruptcy.

A spokesman for James W. Giddens, the trustee unwinding the brokerage, said his office has been in "regular communication" with Mr. Freeh's office.

"The trustee and Judge Freeh are cooperating to the greatest extent possible," said the spokesman, Kent Jarrell, referring to Mr. Freeh's time as a federal judge. The two trustees have had some disagreements throughout the case, but Mr. Jarrell called the filing "another step in the ongoing cooperation" between the two.

A judge will consider approving the stipulation at an Oct. 11 hearing.

Mr. Giddens has recovered about $5.3 billion of the $5.5 billion to $6 billion in U.S. customers' segregated funds held at the brokerage and has returned more than $4.7 billion to customers via a series of bulk transfers arranged by CME Group Inc. (CME) in the weeks following MF Global's demise last year, as well as interim distributions. Despite the return of that money, he still estimates a $1.6 billion shortfall in customer accounts, money that should have been matched dollar for dollar. Mr. Giddens, as well as regulators, has been investigating the shortfall since the beginning of MF Global's bankruptcy case.

Mr. Giddens is winding down MF Global's broker-dealer business under the authority of the Securities Investor Protection Act, which governs the liquidation of failed brokerage firms. The liquidation is separate from the bankruptcy case of MF Global Holdings, the parent company, which filed for Chapter 11 protection last fall. That estate is now being overseen by Mr. Freeh, a former director of the Federal Bureau of Investigation.

In separate reports earlier this year, Mr. Giddens criticized the sovereign-debt investments that drove MF Global out of business and said he might pursue claims against the man who directed those bets, former Chief Executive Jon S. Corzine. Mr. Freeh's report said the parent might have about $2.3 billion in claims against the brokerage business.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at [e-mail]

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