A day after Louis J. Freeh hinted he might sue MF Global‘s top executives for “negligent conduct,†the bankruptcy trustee’s liquidation plan secured court approval on Friday, ushering in a final phase of a case that rattled Wall Street and spawned a federal investigation.
At a hearing in bankruptcy court in Manhattan, nearly 18 months after the firm imploded, Judge Martin Glenn cleared the way for the defunct brokerage firm to sell its remaining assets and return money to creditors. For Mr. Freeh, a former director of the F.B.I. who is now liquidating MF Global’s estate, the ruling represented a major step toward ending the largest and most controversial Wall Street bankruptcy since the financial crisis.
When the firm collapsed â€" and improperly tapped customer money to plug a gap in its own finances â€" the blowup consumed Wall Street and Washington. MF Global, then run by Jon S. Corzine, the former governor of New Jersey, became a byword for excessive risk taking and the target of a federal investigation into $1.6 billion in missing customer money.
The investigation by criminal and civil authorities continues. And in a report released on Thursday, Mr. Freeh suggested that he might sue Mr. Corzine and other top executives, blaming them for engineering a “risky business strategy†and ignoring “glaring deficiencies†in internal controls.
Mr. Freeh pointed to Mr. Corzine’s outsized bet on European debt. While the bonds were not by themselves to blame for the fall of MF Global, the bet spooked investors and rating agencies, sending the firm into a tailspin.
Mr. Freeh agreed to postpone the lawsuit while he pursues mediation with Mr. Corzine. And a spokesman for Mr. Corzine argued that “there simply is no basis for the suggestion that Mr. Corzine breached his fiduciary duties or was negligent.†The spokesman, Steven Goldberg, added that “the trustee’s report, with its allegations of negligent conduct, is a clear case of Monday morning quarterbacking.â€
Judge Glenn’s decision to greenlight the liquidation plan will empower Mr. Freeh to wind down his role in the case. When the plan becomes effective, he will hand the reins in part to a committee of MF Global creditors. Mr. Freeh attended the hearing on Friday to speak in favor of the deal.
Under the plan, MF Global will pay up to 34 percent of claims filed by hedge funds and other unsecured creditors who owned MF Global bonds. The hedge funds, including Silver Point Capital, supported the plan.
JPMorgan Chase, one of MF Global’s largest lenders, will fare better. The bank is expected to collect up to 76 percent of its claims under the plan approved on Friday.
The firm’s customers, who saw their money vanish in the wake of the bankruptcy, are also poised for a big payout. James W. Giddens, a trustee tasked with returning money to customers, has recovered most of the funds from MF Global’s banks and clearinghouses. Mr. Giddens, who already returned about 89 percent of the missing money, recently sought court approval to dole out up to about 97 percent.
Given the recent progress, it was not surprising that Judge Glenn approved the liquidation plan. While it faced some objections from the Justice Department’s trustee program, the agency largely withdrew its concerns pending some slight modifications to the plan.
