According to lawyers’ estimates and costs, fees for liquidating the MF Global Inc. broker-dealer may hit $100 million in one year. These stats are based on the same timeframe and cost to wind down two other brokerages; Lehman Brothers Inc. and Bernard Madoff’s firm. James Giddens is an MF Global trustee, whose rate in the Lehman case is $891 per hour, has his law firm supervising 100 Deloitte LLP consultants, 60 Ernst & Young LLP forensic accountants, and 190 former MF Global employees during the process. All of these entities are working with the United States Justice Department, securities and commodities regulators, exchanges and clearing houses. The work is being performed to transfer accounts and investigate money that is missing for customers.
“For MF Global, $100 million is a good number, unless the missing funds investigation becomes very complex,” said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville. “If this is another Madoff, then fees will rapidly increase.”
There was a disappearance of roughly $600 million in futures client funds that the Commodity Futures Trading Commission had been investigating as MF Global prepared to file for bankruptcy. This number turns out to be around 11 percent.
The fees in brokerage liquidations are paid by the Securities Investor Protection Corp. Giddens told Martin Glenn, a United States Bankruptcy Judge from Manhattan, that he would charge a 10 percent discount from his normal rates. Giddens also said he would not charge for overtime meals, after hours travel, or any other major expenses.
According to a court document, Giddens claims that he dealt with close to 165 letters submitted by MF Global clients that demanded their money. Close to 38,000 customer accounts have been transferred to futures brokers and 400 securities accounts are still in need of a new home. Following the accounts is close to $1.6 billion in collateral. There is still $520 million that needs to be moved by Giddens, who is planning a third distribution because available assets are about to run out.
“We all hope the number will go down, but it could go up,” said Kent Jarrell, a spokesman for the trustee, said in a statement. “The process of cleaning up after a company like MF Global fails is very complex and not easy and requires a disciplined plan, consistent with the law. That is exactly what we are doing.”
Giddens transferred 110,000 customer accounts and assets totaling $92 billion to other firms when dealing with the Lehman brokerage. Giddens works for the law firm of Hughes Hubbard & Reed LLP, which has earned $169 million since the Lehman brokerage’s parent company filed for bankruptcy in 2008.
Deloitte collected $328 million in the Lehman brokerage case, with total fees of $544 million in addition to the $1.5 billion spent by Lehman on the liquidation.