MF Global customers moved one step closer to recouping their missing money late on Tuesday when JPMorgan Chase released its claim to more than $500 million belonging to the bankrupt brokerage firm.
The settlement deal, struck between JPMorgan and the trustee overseeing the return of customer money, puts to rest more than a year of tough negotiations. JPMorgan was reluctant to part with the money, arguing in part that it was owed tens of millions of dollars as a creditor of MF Global.
But the settlement deal, which includes a $100 million cash payout to the trustee and a promise from JPMorgan not to clawback $417 million it doled out last year, paves the way for MF Global’s customers to recover nearly all the money that disappeared when the brokerage firm imploded. That goal, surprisingly within reach, is a stunning turnaround from MF Global’s bankruptcy filing in October 2011, when $1.6 billion vanished from the firm.
“This is a significant milestone in returning assets to former customers,” James W. Giddens, the trustee, said in a statement.
In a sign that Mr. Giddens is moving closer to making MF Global’s customers whole, he asked a bankruptcy court judge on Tuesday to approve $300 million in cash payouts. The request comes on the heels of a payout in January that brought most American customers to 93 percent of their original investment, up from 80 percent. The new request, if approved by Judge Martin Glenn of the United States Bankruptcy Court in Manhattan, will further aid customers by “several percentage points,” according to Mr. Giddens.
Foreign customers are not as well-positioned, though they too could receive additional money from the JPMorgan settlement.
The accord closes a bitter chapter in the MF Global debacle.
MF Global customers have long questioned whether JPMorgan was playing hardball, echoing accusations the bank faced in the aftermath of the Lehman Brothers bankruptcy. The customers complained that JPMorgan was slow to settle with Mr. Giddens, and even now they wonder whether the bank should have returned more.
Mr. Giddens noted, however, that the deal was an “economically sound agreement ending what would have been a costly, protracted, and uncertain legal battle.” Without the agreement, he said, fresh payouts to customers could have stalled “for at least two or three years.”
While JPMorgan had already returned $1 billion belonging to customers and $417 million in the firm’s proprietary funds, it attached a lien to the latter payment. Under the deal to pay $100 million to Mr. Giddens, it also released the lien on Tuesday.
“We are pleased to have reached this settlement, which will help restore funds to MF Global’s customers,” a JPMorgan spokeswoman said in an e-mail, adding that bank officials “don’t expect this settlement will have a material impact on our results.” The spokeswoman, Jennifer Zuccarelli, explained that “the agreement resolves all outstanding matters” between the bank and the MF Global “estate, its customers and creditors.”
JPMorgan was an obvious target for Mr. Giddens. It was at the center of MF Global’s downfall, lending to the firm and clearing its trades.
The bank was also a major recipient of customer money during MF Global’s chaotic final moments. When MF Global posted extra collateral to back its trades, aiming to reassure JPMorgan about its precarious position, some of the funds most likely belonged to customers.
Federal authorities have also scrutinized a $175 million transfer MF Global made from customer accounts to JPMorgan the day before the brokerage collapsed. The transfer, which was authorized by the firm’s Chicago office, was made to patch an overdraft in a London account.
While JPMorgan questioned the origin of the funds, seeking written assurances that the transfer was legitimate, MF Global balked. JPMorgan seized the money anyway, though the bank has said that it received oral assurances.
“As we have said before,” the JPMorgan spokeswoman said, the bank “worked to assist our client in a responsible manner under very challenging circumstances.”
James L. Koutoulas, a Chicago hedge fund manager who became a voice for thousands of customers whose money disappeared, might disagree. After he appeared on CNBC in 2011 to criticize JPMorgan, the bank closed his account and froze his credit card.
The bank has declined to discuss Mr. Koutoulas.
Article source: http://dealbook.nytimes.com/2013/03/20/with-jpmorgan-settlement-mf-global-clients-move-closer-to-payout/?partner=rss&emc=rss