Wanted to Buy: MF Global Claims

Since MF Global Holdings Ltd. filed for bankruptcy protection last year, some customers of its failed brokerage have had little choice but to wait for the full return of their cash.

That is beginning to change. Lately, investors that gobble up claims in bankruptcy or other distressed situations have begun approaching former MF Global customers with offers to buy their claims for cash, at a discount.

The moves are similar to offers that emerged after the December 2008 disclosure that Bernard Madoff's investment-advisory firm was a Ponzi scheme. Speculators ranging from boutique investment firms to big banks have been transacting for claims of defrauded Madoff customers with the expectation that the trustee will be able to recover and return additional funds.

In the MF Global matter, the investment firms' offers are a bet that the trustee attempting to recover an estimated $1.6 billion in customer assets will find and return more—perhaps all—of the missing funds. Customers who choose to sell to these firms essentially relinquish their claim to the rest of their cash in exchange for money now.

Brokerage customers have already been reunited with 72% of the funds they lost access to at the time of MF Global's Oct. 31 bankruptcy filing. One firm, Triax Capital Advisors, based in New York, is offering to bring that figure to 88% in exchange for a customer's claim to the remainder of their funds.

Barrett Mikelberg, director of business development at Triax, said he has talked to between 60 and 80 customers of MF Global since late December about the possibility of buying their claims. He is targeting customers with larger claims totaling $1 million or more. None with claims that large have struck a deal yet, he said. But in the past week, a small number of customers with claims under $1 million have agreed to sell, he said.

"I'm willing to buy any claim," Mr. Mikelberg said. "I don't discriminate on size."

David Rosen, for one, isn't ready to deal. Co-owner of energy trading firm Rose Trading, he said he has been approached by multiple firms offering to buy his $50,000 claim. He is holding out. "I personally believe that at the end of the day the U.S. government, the CFTC [Commodity Futures Trading Commission] and the U.S. futures industry will not allow for a customer loss," he said.

The trustee liquidating MF Global's brokerage says on its website that it takes no view on whether customers should sell their claims.

Another firm, ASM Capital, said that in the past week it has begun mailing letters to customers with two different offers. The first offer is similar to Triax's: the remainder of a customer's claim for a discount. The second offer is for a smaller fraction of the customer's claim now, plus a stake in any additional payout from the trustee.

"We're trying to reach all customers, as many as possible," said Adam Moskowitz, chief executive of ASM Capital, based in Woodbury, N.Y. "This is part of what we do here on a regular basis."

Mr. Moskowitz declined to disclose how much he is offering customers. He said he is optimistic that additional money could be returned to customers partly because the trustee controls $1.4 billion that he is holding in reserve for matters such as litigation. "Whether or not all of that gets freed up to pay creditors is yet to be determined," Mr. Moskowitz said.

For both customers and the investors, the deal is a gamble. The trustee overseeing the liquidation, James Giddens, has said he has no further plans to return funds to customers in bulk; rather, claims from customers for the rest of their funds were due to the trustee by Jan. 31.

Mr. Giddens has said that he faces challenges in getting back the remaining funds. Last week, he said he has traced a majority of the cash transactions made by MF Global during its final week in October, when a shortfall in customer accounts began to emerge. But he also said retrieving that money could be difficult and will involve "very complex legal and factual determinations."

The Wall Street Journal reported last month that a "significant amount" of customer money could have "vaporized" in the chaotic final week before the firm's bankruptcy filing.

In the Madoff matter, the value of offers for claims has fluctuated widely, from as low as 20 cents to as much as 75 cents on the dollar. So far, Mr. Madoff's customers have received 6.5% of their principal back between distributions by trustee Irving Picard and the Securities Investor Protection Corp., a securities-industry group that provides insurance for bankrupt firms. That represents more than $1.1 billion of the $17.3 billion in potential claims.

—Michael Rothfeld contributed to this article.

Bernard Madoff, MF Global, MF Global, MF Global Holdings Ltd., investment firms, claims, claims, bankruptcy protection, Adam Moskowitz, Commodity Futures Trading Commission, funds, funds

Online.wsj.com