WASHINGTON, Aug 1 (Reuters) - Customers of the failed
futures brokerage MF Global got mixed signals on Wednesday about
their chances of recovering all of a $1.6 billion shortfall
after two trustees involved in the firm's liquidation offered
different outlooks about their chances of success.
In prepared testimony before the Senate Agriculture
Committee, former FBI Director Louis Freeh -- who is responsible
for winding down MF Global's parent company -- told lawmakers he
is quite confidence that "all of the customers of MF Global Inc
eventually will be made whole."
But James Giddens, the trustee for the broker-dealer unit
tasked with recovering customers' missing funds, offered a less
rosy picture, saying legal obstacles to recovering the money
"We very much would like to pay every customer 100 percent,
however, it will be a time consuming, difficult uphill battle,"
Giddens told the Senate panel.
"We appreciate Mr. Freeh's apparent support and confidence
in our ability to collect and allocate additional substantial
assets and certainly that remains our singular focus."
Wednesday's congressional hearing was convened to examine
both the collapse of MF Global and Peregrine Financial Group, a
smaller Iowa-based futures brokerage that filed for bankruptcy
July 10 after its founder Russell Wasendorf Sr. attempted
suicide and left a note where he admitted to running a nearly
20-year fraud by forging bank documents.
More than $200 million of customer money is missing at
Peregrine, according to regulators.
Wasendorf was arrested days after his suicide attempt on
charges of lying to regulators. He is also facing a civil
lawsuit by the Commodity Futures Trading Commission.
The CFTC and criminal authorities, however, have still not
filed any charges in connection with MF Global's collapse back
in October and the loss of customer money.
"The failure of two futures brokerages in a nine-month time
span has deeply wounded investor confidence in the futures
markets," said Senate Agriculture Committee Chairman Debbie
"We have heard from farmers and businesses who, after MF
Global collapsed, opened accounts at Peregrine. For these folks,
lightning really does strike twice in the same place, and they
rightfully want to know why. I want to know why."
Giddens told lawmakers on Wednesday he expects to soon
return to MF Global customers who traded on U.S. exchanges 80
percent of their accounts, but that far less money so far has
been returned to those who traded on foreign exchanges.
He said he is actively pursuing what "may be valid claims"
against directors and officers, including former Chief Executive
Jon Corzine and is also continuing "active discussions" with
JPMorgan Chase & Co, the bank that was holding customer money
which was transferred overseas.
When asked by lawmakers whether or not Corzine, a former
U.S. senator and governor of New Jersey, knew about the transfer
of customer money, Giddens said he felt there was evidence
pointing to the brokerage's executive suite.
"I think the preponderance of the evidence indicates that
management, senior management at MF Global was aware of the
liquidity crisis and was aware that customer funds toward the
end were being utilized to cover other costs in the firm,"
Bankruptcy claims for sale by MF Global customers had risen
to around 90 cents on the dollar by early June, reflecting
growing optimism that most cash would eventually be restored,
although many expect it will take years to do so.
(Reporting by Alexandra Alper, Aruna Viswanath and Sarah N.
Lynch; additional reporting by Jonathan Leff)
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