A U.S. Bankruptcy Court Judge in Manhattan has approved the release of $21 million in cash, currently pledged as collateral at J.P. Morgan Chase, to finance the MF Global bankruptcy. Judge Martin Glenn also acknowledged the objections of customers worried that the cash was part of the multi-billion dollar shortfall. MF Global is permitted to use the funds, but the decision preserves customers’ rights to argue they are entitled to the funds at a later date. Up until now, MF Global has been funding the bankruptcy on an order giving it access to $8 million in collateral.
In order to address these fears, the judge ordered Louis Freeh, the trustee handling MF Global’s assets, to lead an investigation searching for possible links between the J.P. Morgan collateral and missing customer funds. “I’m sensitive to this, because if I wait a year from now, most of the money in this account may have been spent and won’t be able to be recovered,” explained Glenn. Freeh has 60 days to report his findings to the court, though Glenn may extend this deadline if necessary. David Fournier, one of Freeh’s attorneys, states that the trustee does not believe the money in this collateral account was misappropriated from customer accounts.
Not all customers are satisfied with the arrangement. “Where is the customers’ protection?” said James Koutoulas of the Customer Commodities Coalition. “I know there’s a reservation of rights, but if the money gets spent, you can’t really un-spend it.”