Butler Opposition to Motion of Trustee for Order - Mg Opposition

8/3/2019 Butler Opposition to Motion of Trustee for Order - Mg Opposition

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Hearing Date: November 16,2011 at 3:30 p.m. (Prevailing Eas tern Time)

Tibbetts Keating & Butler, LLC43 Corbin Drive

Darien, CT 06820Telephone: (203) 656-1066Timothy F. Butler, Esq. (TB-8749)Mario D. Cometti, Esq. (MC-2699)

and

Butler, F i t z ~ e r a l dFiveson & McCarthy36 West 44 Street, Suite 816New York, New York 10036Telephone: (212) 615-2200

Facsimile: (212) 615-2215David J. McCarthy, Esq.

Attorneys for Thomas A. Butler, Jr., James H.Barton, Jr., Stuart Satullo, and Adam Loos

UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEWYORK

In re:

Case No. 11-2790 (MG) SIP A

MF GLOBAL INC.

Debtor.

OBJECTION OF THOMAS A. BUTLER, JR., JAMES H. BARTON, JR.,STUART SATULLO AND ADAM LOOS TO TRUSTEE'S EXPEDITEDAPPLICATION FOR AN ORDER ESTABLISHING PARALLEL CLAIMSPROCESSES FOR COMMODITY FUTURES CUSTOMER AND SECURITIESCUSTMER CLAIMS; APPROVING FORM AND MANNER OF PUBLICATIONAN D MAILING OF NOTICE OF COMMENCEMENT; SPECIFYINGPROCEDURES AN D FORMS FO R FILING, INFORMAL AND FORMALDETERMINATION, AND ADJUDICATION OF CLAIMS; FIXING AMEETING OF CUSTOMERS AND OTHER CREDITORS; AND FIXINGINTERIM REPORTING PURSUANT TO SIPA

11-02790-mg Doc 246 Filed 11/16/11 Entered 11/16/11 13:31:21 Main DocumentPg 1 of 7


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Thomas A. Butler, Jr., James H. Barton, Jr., Stuart Satullo, and Adam Loos ("Certain

Segregated Commodity Account Holders"), by and through their undersigned counsel,

respectfully submit this opposition to the Motion o f Thomas W. Giddens (the "Trustee"), as

trustee for the liquidation of the business of MF Global Inc. ("MF Global"), for an order (1)

establishing parallel claims processes for commodity futures customer and securities customer

claims; (2) approving the form and manner o f the publication and mailing o f the notice of

commencement o f this proceeding; (3) specifying procedures and forms for the filing,

determination, and adjudication of claims; (4) fixing a meeting of customers and other creditors;

and (5) fixing an interim reporting procedure pursuant to SIPA, which the Trustee describes as

"the expedited claims procedures" (hereinafter, "Application for Expedited Claims Procedures"

or "Application"). In support of this Objection to the Application for Expedited Claims

Procedures, the Certain Segregated Commodity Account Holders respectfully state as follows:

L This Objection is addressed to only that portion of the Trustee's

Application which relates to the claims process for commodity future accounts; the Certain

Segregated Commodity Account Holders do not have any objection to the portion of the

Trustee's Application which seeks to establish claim procedures for securities customer claims.

2. The Trustee's Application for Expedited Claims Procedures, as it relates

to the claims process for commodity futures customers, gives the illusion of a simple, non

controversial and orderly process for the resolution of the claims of such customers. In reality,

the proposed claims process disguises some very difficult and systemic issues.I t

is respectfully

submitted that the Court should not enter an order regarding the process of resolving commodity

futures customer claims until i t has received and had a chance to consider evidence clarifying the

anticipated length of time the Trustee anticipates it will take before commodity customers will



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receive final distributions on their claims and, most important, evidence regarding the impact o f

the proffered claims process on the efficiency o f the United States commodity markets and the

commodity traders in those markets.

3. The Certain Segregated Commodity Account Holders do not object to the

general framework o f the Claims Process described in the Trustee's Application and agree with

the Trustee that each of proffered steps in that process are appropriate and the process should be

expedited. However, the Application for Expedited Claims Procedures is vague about the length

of time it will take to make final distributions of customer funds, sets forth no time estimates for

mosto f

the steps in the process, and where there is a definite time period set forth a time periodthat is needlessly long.

4. The Trustee's proposed claims process essentially involves the following

steps:

(i) the publication and mailing of notice of the commencement of thisproceeding, along with claim forms;

(ii) the filingo f

commodity customer claims for net equity, onproscribed forms;

(iii) the Trustee's determination o f the claims;

(iv) the trustee's satisfaction o f the approved claims;

(v) the filing by a claimant of a challenge to the Trustee'sdetermination, followed by a court proceeding to consider thepropriety o f the Trustee's claim determination; and

(vi) the reclassification o f claims that are denied as customer claimsentitled to share in customer property as secured or unsecuredgeneral creditor claims.

5. The only steps in the process that have any fixed time frames are the first

two steps. Specifically, the publication and mailing step is to be completed by November 28,



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2011 and the filing of customer claims is to occur before January 27, 2012. (Application, at ~ ~

16,22-23) Those first two steps in the process alone extend the expedited claims process into

February 2012.

6. As for the claim determination step in the process, the Application is

needlessly vague. The Application for Expedited Claims Procedures only states that the claim

determination step shall be completed "a s promptly as possible", without offering any guidance

as to what that means to the customers desperate to receive their segregated funds. (Application,

~ 26) Moreover, the Application for Expedited Claims Procedures does not set forth any time

frame to satisfy any approved claim, or to consider and satisfy any portion of a creditor claim

that is reclassified as a general claim because there are insufficient funds to pay th e customer

claim in full. (Application, at ~ ~25-26) Indeed, the Application states explicitly that claims

determinations will be made on a rolling basis upon filing of a claim (Application, ~ 5(c)), but

does not provide any information as to whether distributions on allowed claims will be made on

a regular rolling basis. Given the absence of any estimate of the length of time this process will

take, i t certainly is reasonable to expect that under the Trustee' s proposed claims process it will

be months into 2012, and possibly even the summer of2012, before a commodity customer will

receive a final distribution on his claim to his segregated funds. Such a delay in the satisfaction

of commodity customer claims to their segregated funds implicates important public interests

that are simply ignored in the Trustee's application.

7. First, the Trus tee 's request for approval of this claims process on one day

notice is improper. I t was incumbent upon the Trustee to show that the reason advanced for

reducing the time for the motion outweighed the possible prejudice to other parties. The Trustee

failed to make any such showing. (Motion to Shorten Notice to One Day, Doc. No. 145)



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Indeed, the Trustee did not proffer any reason why the notice period in connection with the

Application should be reduced to only one day, as opposed to a request to reduce the notice

period to one week, such that i t would be heard on November 22, 2012, for example. The

Trustee asserted only that "[t]he expedited Claims Procedures AppHcation is an important and

necessary procedural step in accomplishing the prompt and efficient return of customer

property." (Motion to Shorten Notice to One Day, Doc. No. 145, at ~ 8) This statement is at the

same time completely true and completely irrelevant to the why the Application needs to be

heard on one days notice. Indeed, given the importance o f this necessary procedural step it is

imperative that the parties affected by the claims process; i.e., the commodity futures customers

with claims to their segregated funds, have an opportunity to present to the Court evidence that

the delays inherent in the claims process not only will harm commodity traders who had

accounts at MF Global but also will be detrimental to the United States commodity markets and

will have the effect of driving commodities traders to commodity exchanges in foreign countries.

Ironically, the Trustee's effort to shorten the notice on the Application to approve a purportedly

expedited claims process actually serves to squelch any meaningful Objections that a shorter,

more expeditious claims process is required.

8. Second, the Trustee's proposal does not proffer any evidence or argument

why the time frame inherent in proposed claims process is the most expedient and efficient way

to process the claims. The Trustee acknowledges in his application that he has a statutory

mandate "to promptly satisfy customer claims and liquidate MFGI in an orderly fashion."

(Application, ~ 1] However, the Trustee then fails to explain why a claims process of

indeterminate length is the most efficient manner "to promptly satisfy customer claims" of

commodity account holders. Indeed no information was cited whatsoever as to whether the time



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frame that has been proffered will sufficiently address the very concerns that lead the Trustee to

move for an expedited hearing. I t is submitted that the Court should not approve a claims

process without first considering and weighing whether the length of that process will cause

more harm than good, and whether the proffered time period can be reduced so as to better

accommodate and address the very considerations that prompted the Trustee to act with urgency.

The bedrock principle that provides commodity customers with the necessary faith in the

commodity markets in the United States is the principle that the customers' accounts are

segregated customer accounts and, as such, will not be used by the brokerage firm in trading for

the firm's own account, will be returned immediately in the event a brokerage firm fails, and will

not be subject to the claims of the brokerage firm's creditors, secured or otherwise. The Court

cannot analyze properly the merits o f the Trustee 's proposed claims process without hearing

evidence regarding whether the length o f that proposed process will impact that bedrock

principle and, therefore, the integrity and stability o f the commodity markets. That is too

important a public interest to make a hasty decision on the Trustee's Application.

9. We respectfully submit, and expect with a few days longer notice,

evidence can be presented to demonstrate that the delays and uncertainties in the commodity

customers' recovery o f their share of segregated funds which are inherent in the Trustee's

proposed claims process undermines the integrity and stability of the United States commodities

markets, and harms the traders engaged in trading in those markets. It is also submitted that

such evidence will further show that any erosion in the effectiveness o f the segregated account

principles will cause commodity customers to move out o f the commodity markets altogether, or

instead look to conduct their commodity trading in safer environs; they cannot be expected in the

future to trade in United States commodity markets when doing so will expose their holdings to

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delays o f months, or years, in the return o f their funds in the event their brokerage firm fails, and

potentially exposes their funds to the creditors o f the brokerage firm holding their account. If a

brokerage firm's own fmancial difficulties will cause lengthy delays in customers gaining access

to their segregated accounts, and will put in jeopardy a full recovery o f those segregated account

holdings, the customers either will stop trading in commodities or will take their business to

another country where there accounts are more secure. The CME guarantee o f up to $250

million o f any shortfall in MF Global segregated funds implicitly recognizes this concern and is

a sound illustration o f the perceived importance o f market integrity to stabilizing commodity

trading in the United States.

10. The Certain Segregated Commodity Account Holders acknowledge and

agree with the Trustee's representations to the Court as the urgency created by the continued

withholding o f customers assets, such as cash, and the necessity o f the implementation o f a

claims process procedure. Nonetheless, it is respectfully submitted that such urgency warrants

careful consideration that any claims process that is created be as expeditious as possible.

FOR THE FOREGOING REASONS, the Objectors request that the Court adjourn the

Application for further consideration on November 22, 2011.

Dated: November 16, 2011New York, New York

Tibbetts Keating & Butler, LLC

By: Timothy F. Butler, Esq. (TB-8749)Mario D. Cometti, Esq. (MC-2699)

43 Corbin DriveDarien, CT 06820Telephone: (203) 656-1066Attorneys for Thomas A. Butler, Jr., James H.Barton, Jr., Stuart Satullo, and Adam Loos


Documents

Butler Opposition to Motion of Trustee for Order - Mg Opposition