Lawmakers Question MF Global Trustee’s Work on Lehman Brokerage

Story first appeared in Bloomberg News.

The trustee liquidating MF Global Holdings Ltd.’s brokerage came under fire from two Republican lawmakers who said he’s proven too slow at a similar task resolving the broker-dealer of Lehman Brothers Holdings Inc.

In a Nov. 4 letter to regulators, Representatives Ed Royce and Scott Garrett said they were concerned that the trustee, James Giddens, has been handling the Lehman liquidation for three years and made little progress returning money to customers and creditors. Meanwhile the process has cost more than $640 million, the lawmakers noted.

“As the trustee fees continue to mount” and the “resolution languishes, it is surprising that the very same trustee was recently selected to liquidate MF Global’s broker- dealer business,” the lawmakers wrote to U.S. Securities and Exchange Commission chief Mary Schapiro and Stephen Harbeck, the head of the Securities Investor Protection Corp.

Royce, of California, and Garrett, of New Jersey, both members of the House Financial Services Committee, said that although the Lehman case is more than three years old “no distributions have been made to customers, no settlements have been made with Lehman affiliates and no effort has been made to resolve unsecured claims against” the firm.

Harbeck’s group, known as SIPC, requested last week that Giddens, of the law firm Hughes Hubbard & Reed LLP, be named as the trustee for the MF Global brokerage liquidation. A federal judge approved the appointment on Oct. 31.

Retail Customers

John Nester, a spokesman for the SEC, which oversees SIPC, and Kent Jarrell, a spokesman for Giddens, declined to comment. Ailis Aaron Wolf, a spokeswoman for SIPC, had no immediate comment.

Most of the Lehman brokerage’s retail customers got access to their accounts within a couple of weeks of the bankruptcy after Giddens got them transferred to other firms. He’s now working on solving claims of hedge funds and other institutional investors.

Giddens, in a court filing last month, said he has gathered some $20 billion in the Lehman case and his goal is to “make a substantial distribution on customer claims, and to make interim distributions when it is possible to do so, possibly as early as the spring of next year.”

The bulk of the $642 million in expenses in the case have gone to consulting and financial advisory fees, according to the Oct. 21 court filing. Giddens and Hughes Hubbard have been paid about $169 million.
They’ve been working on the liquidation of Lehman Brothers Inc. since September 2008, shortly after the brokerage’s parent company filed the largest bankruptcy in U.S. history.

In their letter, Royce and Garrett said the “lack of progress” in that resolution “raises questions regarding what is expected of the trustee and the process by which these fees are approved.”