When James Giddens of Hughes Hubbard & Reed was tapped last
November to lead recovery efforts for customers burned in MF
Global's collapse, he was not exactly greeted with gold,
frankincense, and myrrh. From his competence to his fees --
which brokerage customers deemed too high before they were even
disclosed -- no perceived shortcoming went unchallenged.
But as spring sets in, circumstances -- and fickle minds --
have changed. Here's a mark of how much: One of Giddens' most
outspoken critics, who once slammed the Hughes Hubbard partner
for billing $891 an hour, now says he'd accept a hug from
Giddens if one were offered.
"He was under a lot of stress, I was under a lot of stress,
we had a couple public confrontations," said the onetime critic,
MF Global customer advocate James Koutoulas. "Now I think we get
It helps considerably, of course, that Giddens' projected
recovery of customer funds is running way ahead of the trustee's
initial forecasts. In February, Giddens pegged the gap in
customer accounts from MF Global's improper use of their funds
at $1.6 billion. He's in charge of trying to recover as much
money as possible from banks, clearinghouses, and MF Global
affiliates; Giddens has already paid back MF customers roughly
$3.9 billion, and wants to distribute another $600 million to
customers who traded on U.S. exchanges, which would bring their
recovery to about 80 cents on the dollar.
Reuters reported last month that customers have become so confident in Giddens' ability to return most of their missing
funds that some are deciding to hold onto their bankruptcy
claims despite aggressive offers from institutional buyers. Rod
Schulken, whose hedge fund had $2.1 million in MF Global
accounts, called the Giddens-led recovery process "the only
tangible thing you can really put your confidence in" as a
former brokerage client.
That's quite a change from the chorus of derision that
greeted Giddens when he was first appointed by the Securities
Investor Protection Corp, an insurance fund to cover customers
of failed securities firms, after MF Global filed the
eighth-largest Chapter 11. SIPC CEO Stephen Harbeck told Reuters
he hand-picked Giddens -- who was battle-tested from his work
heading the liquidation of Lehman Brothers' broker-dealer -- in
part because he was "unflappable."
It was a characteristic Giddens would need, since rapid-fire
attacks began almost immediately. In November, a customer group
said Giddens "didn't know how to read a commodities statement"
and lacked the knowhow to help commodities traders. Other
customers panned the trustee for alleged conflicts of interest
and perceived slowness in returning their money. Koutoulas
accused Giddens of being "the only person served" by lengthy
Giddens' camp said the legal team's aim "right from the
start" was to advocate for customers. "Bankruptcies and
liquidations, by definition, are complex and difficult and we
know how frustrating the failure of MF Global was for its
customers," Giddens spokesman Kent Jarrell said.
Gradually, the trustee is winning over those customers.
"They've seemed thoughtful," former MF Global customer Hilary
Escajeda said of Giddens' legal team. "They've become open to
working with us and thinking through the implications of
That's not an unusual progression, said Fred Grede, who
served as trustee for fallen cash-management firm Sentinel
Management Group. "Emotions run very high right after these
types of events," Grede said. "People are angry and upset and
oftentimes they have no one to lash out at ... and the only
person standing up there front-and-center is the trustee." Then,
as the heat dies down, Grede said, customers may become more
receptive to a trustee's efforts to return their money.
MF customer Koutoulas has referred fondly to Giddens as "The
Dude," in addition to conceding that he would not be averse to a
hug from the trustee -- but that doesn't mean he's completely
ready to embrace Giddens and Hughes Hubbard. "I'm about as happy
with an evil, $900-per-hour white-shoe law firm as I could be,"
Koutoulas said. He'd still like to see Giddens be more
aggressive in suing potential beneficiaries of improper
transactions that involved customer cash. Stanley Haar, an
adviser whose clients had about $10 million tied up in MF
Global, said he is still vexed by a complex claims process, and
has not been told by Giddens whether his claim will be accepted.
Customers' recent affability isn't necessarily permanent,
Grede said. After he lost a suit seeking to recover money for
Sentinel customers from Bank of New York Mellon (the case is now
on appeal), customers became "very upset," Grede said. A similar
misfortune for Giddens could have the same result, he said.
But one thing is clear: in the eyes of customers, at least
for the moment, Giddens is coming ever closer to fulfilling the
role they want him to play. For the first time, they feel he is
on their side.
(Reporting by Nick Brown)
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