With MF Global customers impatiently waiting for the return of missing their funds, help may soon be on the way. But it won’t come from a traditional source.
Customers have been approached by investors that grab bankruptcy claims or other depressed distressed situations and offer to purchase them at a cash discount. This has been done with claims from the Bernie Madoff Ponzi scheme.
A diverse group of speculators including boutique investment firms and large banks negotiated claims for ripped off Madoff customers. This came with the expectation that the trustee can first recover and then return the funds.
The claim values had varied widely from 20 cents to 75 cents on the dollar. To date, Madoff’s customers have received some money back: 6.5 percent of their principal thanks to the case’s trustee Irving Picard and the Securities Investor Protection Corp.
This small number, $1.1 billion, comes from a potential $17.3 billion claim.
MF Global Claims
For MF Global customers, their claims are different than the Madoff ones. Investment firm offers represent bets that the trustee will recover $1.6 billion in customer assets and possibly more. Customers will then have to risk seeing returned funds as opposed to those selling their claims now; they forgo the opportunity to getting remaining money later for money now.
Brokerage customers of MF Global have already reconciled with 72 percent of the funds they lost access to from the Oct. 31 bankruptcy filing, This number could become larger with Triax Capital Advisors making it 88 percent while taking the customer’s claim for their remaining funds.
According to Barrett Mikelberg, director of business development at Triax, he has spoken with 60 to 80 MF Global customers since late December about potentially buying their claims, according to The Wall Street Journal. His focus is customers with claims of $1 million or greater. No deals have been made yet and Mikelberg has further said he’ll work with any size claim.
A second firm, ASM Capital, has made two customer offers. It started sending out letters in the last week to customers.
One offer is similar to Triax: it buys the customer’s claim at a discount. The second one comes in at a portion of the customer’s claim right away in addition a second allocation from a trustee payout.
Adam Moskowitz, chief executive of ASM Capital said of the offers, “We’re trying to reach all customers, as many as possible. This is part of what we do here on a regular basis.”
The amount offered to customers hasn’t been disclosed by Moskowitz but he is optimistic that additional monies may be returned from the trustee, who is holding $1.4 billion in reserves.
The trustee liquidating MF Global’s brokerage, James Gidden, has not stated his opinion on whether customers should get rid of their claims but he has said customers will not get their funds returned in bulk; the request for claims of remaining funds had to be into the trustee by Jan. 31.
Giddens has been open about the challenges in getting the money back and said just last week that a lot of the cash transactions by MF Global have been traced from its final week.