By Ann Saphir
CHICAGO, Oct 22 (Reuters) - The U.S. Commodity Futures
Trading Commission on Monday won court approval to intervene in
a $205 million dispute between oil major ConocoPhillips and the
bankruptcy trustee for MF Global Inc.
At issue is the treatment of letters of credit that the oil
company -- a longstanding MF Global customer -- had lodged with
the now bankrupt brokerage to back its energy trades.
The CFTC told a federal court in a filing last week it
should be allowed to intervene because of the public policy
interest in "the correct interpretation" of law and rules
governing the futures industry. A judge approved its application
to intervene on Monday.
The regulator, which favors the trustee's interpretation of
the letters of credit issue, will be able to present its views
in court and try to influence a decision that could cost Conoco
tens of millions of dollars should it go against the company.
The dispute focuses on the value of the letters of credit
and how much Conoco is owed in compensation by MF Global.
The brokerage's bankruptcy trustee has returned some money
to former customers, with as much as 80 percent for some kinds
of account holders, and less for others. None have received all
back and bankruptcy law requires customers to share equally in
In the case of Conoco, MF Global bankruptcy trustee James
Giddens returned the undrawn letters of credit to the company
and counted the full face value of the letters towards Conoco's
If that accounting is allowed to stand, Conoco could be
required to return tens of millions of dollars to the estate,
under the argument that the letters of credit are worth more
than the percentage of its accounts to which Conoco is entitled.
Conoco argues the letters of credit should not be counted
against its claims, and that it is owed money from the MF Global
estate. The trustee, James Giddens, says letters of credit are
treated like cash for the purposes of repayment because they
were put up as collateral in place of cash.
The CFTC sides with Gidden's position.
The oil company earlier this year asked the New York federal
court to remove the dispute over the letters of credit from
bankruptcy court. Giddens fought the venue change, but Conoco
won earlier this month.
A unit of Koch Industries is waging a similar fight with the
MF Global trustee over his treatment of the company's $20
million of credit.
All told, nine MF Global customers used letters of credit to
back their trades, with an unknown total face value.
MF Global filed for bankruptcy on Oct. 31, 2011, after
revelations of heavy bets on European sovereign debt prompted
credit downgrades and demands for payments from banks and other
business partners. Regulators say the firm dipped into customer
funds to cope with its liquidity crisis, leaving an estimated
$1.6 billion shortfall in customer funds.
At least one former MF Global customer with a letter of
credit has agreed to Giddens' treatment of such letters: CME
Group, whose GFX unit had a $15 million letter of credit with MF
Global when the brokerage collapsed.
(Additional reporting by Nick Brown)
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