MF Global Holdings Ltd. and Litigation Trustee of the MF Global Litigation Tru

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
MF GLOBAL INC.,
Debtor..
FOR PUBLICATION
Case No. 11-2790 (MG) SIPA
In re:
MF GLOBAL HOLDINGS LTD., et al.,
Debtors.
Case No. 11-15059 (MG)
(Jointly Administered)
MEMORANDUM OPINION AND ORDER GRANTING MOTIONS TO APPROVE
SALE AND ASSUMPTION OF MF GLOBAL INC. ASSETS AND FOR OTHER RELIEF
A P P E A R A N C E S:
HUGHES HUBBARD & REED LLP
Attorneys for James W. Giddens,
Trustee for the SIPA Liquidation of
MF Global Inc.
One Battery Park Plaza
New York, New York 10004
By: 	James B. Kobak, Jr., Esq.
Dustin P. Smith, Esq.
Erin E. Diers, Esq.
JONES DAY
Attorneys for MF Global Holdings Ltd.,
as Plan Administrator
222 East 41st Street
New York, NY 10017
By: 	Jane Rue Wittstein, Esq.
and
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 1 of 22

2
JONES DAY
555 South Flower Street, Fiftieth Floor
Los Angeles, CA 90071
By: 	Bruce Bennett, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court are the joint motions (together, the “Motions”) filed by James
W. Giddens (the “Trustee”), Trustee for the SIPA Liquidation of MF Global Inc. (“MFGI”) (the
“Trustee Motion,” ECF Doc. # 8828),1 and MF Global Holdings Ltd. (“MFGH” or the “Plan
Administrator”) (the “MFGH Motion,” ECF Doc. # 8829).2 The Trustee and MFGH seek entry
of an order approving: (1)(a) the Trustee’s sale of all of his claims, rights, and interests in all of
the MFGI estate’s assets (the “Assigned Rights”) to MFGH or its designated affiliate (MFGH or
such affiliate, the “Assignee”) in exchange for the waiver by MFGH and certain of its affiliates
(collectively, the “MFGH Entities”)3 of future distributions on over $1.16 billion allowed general
unsecured creditor claims in an amount sufficient to allow the Trustee to make a final,
cumulative 94% or 95% distribution on all other non-subordinated allowed general unsecured
creditor claims against the MFGI estate not held by the MFGH Entities (such claims, the “Other
Unsecured Claims” held by the “Other Unsecured Creditors”), and (b) the Assignee’s
assumption of certain of the Trustee’s document retention and discovery obligations, as set forth
in the Sale and Assumption Agreement (the “Sale Agreement,” Tr. Motion Ex. B); (2) the
transfer and abandonment of specified systems and documents and the corresponding limitation
of the Trustee’s discovery and retention obligations; (3) the commencement of the final 94% or
1 The Trustee Motion is supported by the declarations of Vilia B. Hayes (the “Hayes Decl.,” Tr. Motion Ex. A) and
Marlena C. Frantzides (the “Frantzides Decl.,” id. Ex. B).
2 The MFGH Motion is supported by the declarations of Erik M. Graber (the “Graber Decl.,” MFGH Motion Ex. A)
and Andrew Shannahan (the “Shannahan Decl.,” id. Ex. B).
3 	Specifically, the MFGH Entities are all of the Debtors (with the exception of MF Global Market Services LLC)
plus the non-debtor affiliates, MF Global FX LLC and MF Global Special Investor LLC. (Tr. Motion at 1 n.4.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 2 of 22

3
95% distribution to the Other Unsecured Creditors (the “Final Distribution”) following
consummation of the Sale Agreement; and (4) related relief. No objections to the Motions have
been filed.
In many ways, these Motions mark a signal accomplishment in these very difficult cases.
The Sale Agreement negotiated by these parties represents a creative and novel way to move
these cases toward successful conclusions. Granting the Motions will likely allow MFGI’s SIPA
case to close within months rather than years. All of MFGI’s allowed customer, secured,
administrative and priority claims will be satisfied in full, and its general unsecured creditors’
recoveries should be 94-95% of their allowed claims. That result could not have been predicted
at the start of these cases. The MFGH creditors’ ultimate recoveries will depend on outcome of
the litigation and insurance claims, but MFGH has already received over $750 million from its
claims against MFGI. By transferring most of its remaining assets to the Assignee, expenses of
administration of the cases should be substantially reduced while MFGH’s assets (mostly in the
form of litigation claims in the pending MDL proceedings, and very substantial insurance
claims) can be pursued and resolved by settlements or litigation. The rights of creditors, insurers
and defendants in pending or possible litigation are preserved. MFGI will also abandon or
transfer its systems and records (which may be needed in ongoing litigation) to MFGH, except
for those systems and records that the Trustee will continue to maintain because of bankruptcy-
specific retention requirements.
Because of the importance of the Motions to the progress of these cases, the Court will
explain at some length the relief that has been requested and granted. As set forth below, the
Motions are GRANTED.
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 3 of 22

4
I. 	BACKGROUND 4
On October 31, 2011 (the “Filing Date”), the Honorable Paul A. Engelmayer, United
States District Judge for the Southern District of New York, entered the Order Commencing
Liquidation of MFGI (the “MFGI Liquidation Order”) pursuant to the provisions of SIPA in the
case captioned Securities Investor Protection Corp. v. MF Global Inc., No. 11-CIV-7750 (PAE).
(Tr.Motion ¶ 10.) The MFGI Liquidation Order: (i) appointed James W. Giddens as Trustee for
the SIPA liquidation of MFGI; (ii) removed the liquidation proceeding to this Court for all
purposes as required for SIPA proceedings under 15 U.S.C. § 78eee(b)(4) (the “SIPA
Proceeding,” Case No. 11-02790); and (iii) imposed the automatic stay provisions of 11 U.S.C. §
362(a) (the “Automatic Stay”). (Id.)
Also on October 31, 2011, MFGH and most of its unregulated subsidiaries and affiliates
filed cases in this Court under chapter 11 of the Bankruptcy Code. This Court has presided over
the SIPA and MFGH cases. The MFGH Entities hold allowed unsecured claims totaling
$1,162,906,044.99 against the MFGI estate (the “MFGH Unsecured Claims”). (Id. ¶ 11.) The
MFGH Unsecured Claims represent more than 85% of the $1.36 billion of allowed, non-
subordinated general unsecured claims against the MFGI estate. (Id.) The MFGH Entities have
received approximately $751 million in pro rata distributions on the MFGH Unsecured Claims.
(Id.) The SIPA Trustee has distributed $991.6 million (or 74%) to holders of 784 allowed
unsecured general creditor claims, including the MFGH Unsecured Claims, and has also
completed 100% distributions on all allowed secured, administrative, priority, and customer
claims. (Id. ¶ 12.)
4 	The facts recited in this Opinion are described in the Trustee Motion and supporting declarations.
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 4 of 22

5
A. 	Remaining Potential Sources of Recovery
1. 	The Multidistrict Litigation Claims and the E&O Claim
Chief among the remaining potential sources of recovery—and the chief remaining
potential cause of expense to the MFGI estate—are claims arising from the shortfall in customer
property available to satisfy allowed commodity claims asserted against former officers,
directors, and/or other employees of MF Global and other third parties (collectively, the “MDL
Defendants”) in the Multidistrict Litigation (the “MDL”). (See id. ¶¶ 2, 13.) On November 5,
2012, the Customer Representatives5 filed a Consolidated Amended Class Action Complaint
against the MDL Defendants alleging, among other things, violations of the Commodity
Exchange Act, breach of fiduciary duty, and negligence. (Id. ¶ 13.) The Customer
Representatives subsequently assigned their claims to the Trustee—as a representative of
MFGI’s general creditors—in consideration of the advance of general estate funds sufficient to
satisfy all allowed customer net equity claims in the SIPA Proceeding. (Id.) The MDL
Defendants’ defense costs are being paid by the MF Global director and officer (“D&O”) and
errors and omissions (“E&O”) insurers. (See id.)
The Trustee has also asserted a separate, direct claim with respect to the E&O policies.
(Id. ¶ 14.) On March 28, 2012, the Trustee provided the E&O insurers notice of circumstances
that may give rise to a loss under the E&O policies (the “E&O Claim”), which the E&O insurers
acknowledged on March 30, 2012. (Id.) However, the E&O insurers have not issued a coverage
determination on the E&O Claim. (Id.) The Trustee has made repeated attempts to resolve the
E&O Claim but expects that it can only be resolved through a global settlement in the MDL or
5 	The “Customer Representatives” are customers of and former commodities account holders at MFGI who have
asserted claims in the MDL arising from the shortfall in customer property in the MFGI customer estates. (Tr.
Motion at 8 n.7.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 5 of 22

6
other litigation. (Id.) MFGH and its affiliates have been actively engaged in settlement
discussions related to the E&O policies. (Id.)
Discovery between the Customer Representatives and the MDL Defendants is scheduled
to be completed by November 23, 2015. (Id. ¶ 15.) The MDL Defendants’ extensive discovery
requests, along with the concomitant need for the Trustee to maintain systems used by MFGI
before the Filing Date, has been a significant source of expense for the MFGI estate. (Id.) And
mediation between the MDL parties has so far failed to result in a settlement. (Id.)
2. 	The Fidelity Bond Claim and Other Insurance Rights
On December 5, 2011, MF Global’s broker—on behalf of MFGH and MFGI—provided
notice under the fidelity bond insurance policies (together, the “Fidelity Bond”) of circumstances
that may give rise to a loss. (See id. ¶ 16.) On July 25, 2012, MFGI timely filed a proof of loss
with respect to the Fidelity Bond, which was supplemented by a revised proof of loss on May 18,
2015 (the “Fidelity Bond Claim”). (Id.) However, the Fidelity Bond insurers have not issued a
coverage determination on the Fidelity Bond Claim. (Id.) And, according to the Trustee,
litigation may be necessary to resolve the claims asserted against the Fidelity Bond. (Id.)
The Sale Agreement provides for the transfer of the Fidelity Bond Claim as well as the
transfer of the MFGI estate’s rights under certain other pre-Filing Date insurance policies,
including the D&O policies and the fiduciary policies. (Id. ¶¶ 16–17.)
3. 	MF Global UK Recoveries
Under the court-approved settlement agreement between the Trustee and the
administrators for MF Global UK (“MFGUK”), the MFGI estate was allowed a net unsecured
creditor claim of $323,138,456 in the MFGUK insolvency proceeding (after certain agreed set-
offs) (the “MFGUK Claim”). (Id. ¶ 18.) The MFGI estate has received a 84.5% distribution on
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 6 of 22

7
the MFGUK Claim. (Id.) As of March 31, 2015, the MFGUK Administrators projected that
unsecured creditor claims will receive cumulative distributions of 95.3% to 100%, which would
result in additional future distributions to the MFGI estate on account of the MFGUK Claim in
the range of $34.9–48.5 million. (Id.)
4. 	Dooley Contingent Consideration
By agreement dated May 23, 2014 (the “Dooley Assignment”), the Trustee assigned to
the Plan Administrator the MFGI estate’s right and interest in the claim and litigation related to
an asserted proof of loss concerning approximately $141 million in losses sustained by MFGI as
a result of illegal trading activity by Evan Dooley between February 26 and 27, 2008 (the
“Dooley Claims”). (Id. ¶ 19.) Under the Dooley Assignment, the Trustee retained a contingent
right to certain recovered amounts if the settlement of the claim and/or proceeds of litigation
exceeded $135 million (the “Dooley Contingent Consideration”). (Id.) Litigation of the Dooley
Claims is still pending, and any net recovery is contingent and uncertain. (Id.)
5. 	LCH Consideration
By agreement dated December 22, 2012, the Trustee and MFGUK’s Joint Special
Administrators addressed the treatment of potential recoveries from LCH.Clearnet Limited and
LCH.Clearnet S.A. (together, “LCH”). (Id. ¶ 20.) No such recoveries have occurred; however
the Trustee, the Plan Administrator, and the Joint Special Administrators of MFGUK have
determined that, under certain circumstances, MFGI could share in proceeds recovered from
LCH if litigation were brought and succeeded (the “LCH Contingent Consideration”). (Id.)
6. 	Remaining Cash and Other Potential Assets of the MFGI Estate
As of July 15, 2015, the Trustee maintains cash in accounts of approximately $153.4
million. (Id. ¶ 21.) Of this amount, $56 million will be held in reserves for: (i) the six
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 7 of 22

8
remaining disputed non-subordinated, unsecured claims (the “Disputed Claims”); 6 (ii) the
allowable amount of any asserted administrative claims; (iii) payment of accrued but unpaid
administrative expenses of the Trustee and his professionals; (iv) payment of future
administrative costs that may be incurred by the Trustee and his professionals in connection with
the resolution of the Disputed Claims; and (v) costs that may be incurred by the Trustee and his
professionals associated with the MDL and other pending litigation. (Id.) The available cash
remaining after the Final Distribution and these reserves will be transferred to the Assignee
under the Sale Agreement. (Id.)
MFGI’s estate holds certain other known and unknown remaining assets and potential
sources of recovery that will be assigned to the Assignee under the Sale Agreement (the
“Remnant Assigned Assets”). (Id. ¶ 22.) The total value of the Remnant Assigned Assets at the
time of the Closing7 is not expected to exceed $5 million. (Id.)
B. 	Assigned Contracts and Assumed Obligations
In the course of its operations, MFGI maintained voluminous systems and had
relationships with hundreds of vendors. (See id. ¶ 23.) Over the course of the SIPA Proceeding,
the Trustee’s professionals have worked to reduce administrative costs and eliminate
unnecessary information technology. (See id.) First, on October 25, 2013, the Trustee filed a
motion to abandon two electronic data archives—the Autonomy email archive and the Refco-
related data hosted by Transactis—which the Court approved on November 21, 2013. (Id.; see
ECF Doc. # 7259.) Second, on January 10, 2014, the Trustee filed a second motion to
6 The Trustee Motion identifies seven Disputed Claims but one Disputed Claim (Claim No. 500000200 of Charles
Sonson) has since been resolved by stipulation and order. (See ECF Doc. # 8844.)
7 	The “Closing” shall take place at 10:00 a.m. on the second Business Day following the date on which the order
approving the Motion becomes a final, non-appealable order of the Court that has not been stated by another order.
(See Sale Agreement § 5.1.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 8 of 22

9
decommission three additional computer systems. (Tr. Motion ¶ 23.) Certain of the MDL
Defendants objected to this motion, and the Trustee filed a reply. (Id. ¶ 23 n.12.) The Court
entered an order denying the Trustee’s motion without prejudice and, thereafter, the parties
entered into a stipulation resolving the motion, which the Court entered on June 19, 2014. (Id.;
see ECF Doc. # 8014.) Finally, on November 13, 2014, the Trustee filed a third motion to
abandon more than 39,500 boxes of paper records predating August 1, 2006, which the Court
approved on December 16, 2014. (Tr. Motion ¶ 23; see ECF Doc. # 8546.)
Three categories of systems and record depositories remain in the MFGI estate:
(i) systems and record depositories that are subject to a preservation obligation in connection
with the MDL or other pending litigation, which will be assigned to and assumed by the
Assignee under the Sale Agreement (collectively, the “Assigned Records,” Sale Agreement Exs.
B–C); (ii) systems and records that are subject to bankruptcy-specific retention requirements
imposed on the SIPA Trustee that are not necessary for the MDL that will be retained by the
SIPA Trustee (collectively, the “Retained Records”); and (iii) certain systems and records that
are not subject to any retention obligation, which the SIPA Trustee seeks authorization to
abandon through the Motions (collectively, the “Abandoned Records”). (See Tr. Motion ¶ 24.)
1. 	The Assigned Records
The Assigned Records are subject to a preservation obligation in connection with the
MDL or other pending litigations and will be assigned to the Assignee under the Sale
Agreement. (Id. ¶ 25.) The Assigned Records include hard copy document storage, tape and
media storage, support and warranty, email archives, and systems that provided information to
the futures commission merchant and broker-dealer. (Id. (citing Frantzides Decl. ¶¶ 5–29).) The
Assignee will be assuming the Trustee’s discovery and related preservation obligations with
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 9 of 22

10
respect to the MDL Litigation and any litigations relating to the Assigned Rights. (Id.) The
Trustee will no longer maintain the possession, custody, or control of the systems necessary to
respond to future requests related to the Assigned Records, further reducing expenses of the
MFGI estate. (See id. ¶ 26.) The Trustee has provided notice of the Motions to all regulators
and third parties who have submitted a subpoena or document request to the Trustee for
documents since the Filing Date. (Id.)
2. 	The Retained Records
The Trustee will continue to maintain certain systems and records that are subject to
bankruptcy-specific retention requirements, and that will not be assumed by the Assignee under
the Sale Agreement. (Id. ¶ 27.) According to the Trustee, in a SIPA proceeding, records of the
liquidation must be retained for five years from the close of the proceedings, which includes
post-Filing Date claim forms submitted in the SIPA proceeding and related claim reconciliations.
(Id.) The Trustee is required under rules promulgated by the Commodity Futures Trading
Commission to maintain records reflecting the Trustee’s daily computations of the funded
balances of each account with open commodities contracts, which must be retained for the longer
of one year after the close of bankruptcy proceedings or five years from creation of the record.
(Id. (citing 17 C.F.R. § 190.04(b)–(c)).) These are the only retention obligation of the Trustee
that will survive the Closing. (Id.)
3. 	The Abandoned Records
Schedule A to the proposed order granting the Motions (the “Proposed Order,” ECF Doc.
# 8827 Ex. A) sets forth what constitute the Abandoned Records—MFGI’s prepetition licenses,
systems, and records not subject to document retention obligations in the MDL or under any
applicable statue or regulation. (Tr. Motion ¶ 28.) Specifically, the Abandoned Records consist
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 10 of 22

11
of: (i) the UNICOM license, a vendor licensing for user menu management software for the
GMI system (a system containing data related to commodities trading); (ii) Relativity, a data
collection, production, and review platform maintained by the Trustee’s professionals that
includes only data that is duplicative of information in other systems to be retained or assigned to
the Plan Administrator; and (iii) CMTA, an executive invoicing system relating to the equity and
equity options side of the MFGI business, and its related applications, which are no longer
necessary as MFGI is no longer executing trades or issuing invoices. (Id.; see Proposed Order,
sch. A.) The Trustee seeks to abandon the Abandoned Records. (Tr. Motion ¶ 28.)
C. 	General Creditor Claim Distributions and Disputed Claims
The Trustee has made distributions of over $1 billion from the general estate pursuant to
two orders entered by the Court (together, the “Prior Distribution Orders”). (Id. ¶ 29.) On
October 1, 2014, the Court entered an order (the “First Distribution Order,” ECF Doc. # 8364)
that capped the maximum allowable amounts of claims, established a $42 million priority claims
reserve (the “Priority Claims Reserve”) and an unsecured claims reserve (the “Unsecured Claims
Reserve”), and authorized a 100% distribution on all allowed priority claims and a 39%
distribution on all allowed unsecured general creditor claims that began on October 31, 2014.
(Tr. Motion ¶ 29.) On April 16, 2015, the Court entered an order (the “Second Distribution
Order,” ECF Doc. # 8745) that authorized the release of unnecessary reserves from the Priority
Claims Reserve and the Unsecured Claims Reserve, established a second unsecured claims
reserve (the “Second Unsecured Claims Reserve” and, together with the Priority Claims Reserve
and the Unsecured Claims Reserve, the “Claims Reserves”), and authorized a second interim
distribution of 35% (resulting in cumulative distributions of 74%) on all allowed unsecured
general creditor claims that began on April 30, 2015. (Tr. Motion ¶ 29.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 11 of 22

12
1. 	The Claims Reserves
The following distributions have been made as of July 15, 2015: (1) $34 million has
been distributed to claimants from the Priority Claims Reserve; (2) $524 million has been
distributed to claimants from the Unsecured Claims Reserve; and (3) $470 million has been
distributed to claimants from the Second Unsecured Claims Reserve. (Id. ¶ 30.)
Between April 8, 2015 and July 23, 2015, the Trustee has resolved two priority claims
and four unsecured claims for amounts less than their capped amounts and, therefore, the amount
reserved for such claims no longer needs to be maintained. (Id. ¶ 31.) Consistent with reserve
amounts attributed to claims that were allowed or settled for less than their capped amounts,
voluntarily withdrawn, expunged by Court order, or subordinated or reclassified to equity, the
Trustee asserts that: (1) $355,928.85 in reserves can be released from the Priority Claims
Reserve; (2) $2,089,199.14 in reserves can be released from the Unsecured Claims Reserve; and
(3) $1,874,922.31 in reserves can be released from the Second Unsecured Claims Reserve. (Id.)
The remaining $1.7 million of the Priority Claims Reserve relates to reserves of:
(i) approximately $0.4 million subject to release (pursuant to the Motions) as no longer
necessary; (ii) $0.2 million equal to 100% of the capped amounts of all unresolved priority
claims and amounts reserved for taxes the estate is liable for based on distributions; and
(iii) $1.1 million for the 100% distribution on allowed claims of claimants who have not
provided the Trustee with necessary distribution information or whose distributions are currently
in process. (Id. ¶ 32.)
The remaining $21.3 million of the Unsecured Claims Reserve relates to reserves of:
(i) approximately $2.1 million subject to release (pursuant to the Motions) as no longer
necessary; (ii) $13.9 million equal to 39% of the capped amounts of all unresolved unsecured
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 12 of 22

13
claims; and (iii) $5.3 million for the 39% distribution on allowed claims of claimants who have
not provided the Trustee with necessary distribution information or whose distributions are
currently in process. (Id. ¶ 33.)
The remaining $19.2 million of the Second Unsecured Claims Reserve relates to reserves
of: (i) approximately $1.9 million subject to release (pursuant to the Motions) as no longer
necessary; (ii) $12.5 million equal to 35% of the capped amounts of all unresolved unsecured
claims; and (iii) $4.8 million for the 35% distribution on allowed claims of claimants who have
not provided the Trustee with necessary distribution information or whose distributions are
currently in process. (Id. ¶ 34.)
2. 	Administrative Expense Claims
On July 22, 2015, the Trustee filed a motion to establish a bar date of September 4, 2015
(the “Supplemental Administrative Expense Bar Date”) for claims for the payment of
administrative expenses arising between September 1, 2013 and July 31, 2015. (Id. ¶ 35.) The
Trustee will establish a reserve of 100% of the allowable amount of all claims for administrative
expenses received before the Supplemental Administrative Expense Bar Date. (Id.)
3. 	The Other Unsecured Claims and the Disputed Claims
Two categories of general unsecured claims remain subject to the Trustee’s proposed
Final Distribution: (i) the Other Unsecured Claims (Proposed Order, sch. B);8 and (ii) the
Disputed Claims (id. sch. C). (Tr. Motion ¶ 36.) Of the 7,715 general creditor claims asserted or
reclassified from customer status, only the following six Disputed Claims remain unresolved:
8 According to the Trustee, he subordinated claims of MF Global Finance USA Inc. and MF Global Holdings USA
Inc., in the amounts of $470 million and $130 million, respectively, and all other subordinated general unsecured
claims in the SIPA Proceeding, do not constitute Other Unsecured Claims, do not receive any distributions under the
Sale Agreement, and will be discharged without any recovery. (Tr. Motion ¶ 38.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 13 of 22

14
a. 	Robert Charles Class A (“RCA”) (Claim No. 500000143)
RCA asserted a $23.4 million claim against the MFGI estate, alleging that the specifically
authorized transfer of its account from Morgan Stanley Smith Barney to MFGI constituted
unauthorized trading by MFGI in RCA’s account. (Id. ¶ 37(a).) The Court issued an opinion
(ECF Doc. # 8775) granting the Trustee’s objection and disallowing certain portions of the
claim, but held that RCA had pleaded at the sufficiency hearing stage a claim against MFGI for
failure to follow customer instructions. (Tr. Motion ¶ 37(a).) Discovery is to be completed by
October 30, 2015 and a merits hearing is tentatively scheduled for early December. (Id.)
b. 	American Bullion Exchange (Claim No. 4646) and Ryan A.
Nassbridge, as Trustee of ABCC Trust (Claim No. 900020605)
(collectively, “ABEX”)
ABEX filed two claims in the total amount of $8.7 million alleging fraud and
misrepresentation in connection with its accounts at MFGI. (Id. ¶ 37(b).) On August 27, 2014,
the Court entered an order (ECF No. 8239) disallowing and expunging the claims of ABEX on
the grounds that the claims had been filed after the contractual limitations period. (Tr. Motion
¶ 37(b).) ABEX filed an appeal of this decision to the United States District Court for the
Southern District of New York. On August 13, 2015, the District Court issued an Opinion and
Order affirming the decision of this Court. (Case No. 1:14-cv-08155-LGS, ECF Doc. # 18.)
ABEX’s time to appeal the decision of the District Court has not yet run.
c. 	CVF Lux Master S.a.R.L. (“CVF”) (Claim No. 2443)
CVF asserted a claim against the MFGI estate alleging that MFGI was vicariously liable
for violations of German law by introducing brokers. (Id. ¶ 37(c).) On October 15, 2014, the
Court entered an order (ECF Doc. # 8421) reducing the amount of the claim to $2,720,403.54.
(Tr. Motion ¶ 37(c).) The Trustee and CVF are discussing a potential resolution to this claim.
(Id.)
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 14 of 22

15
d. 	Sentinel Liquidation Trust (“Sentinel”) (Claim No. 300000309)
Sentinel filed a claim in the amount of $50,122,480.00 against MFGI based on alleged
preferential transfers made shortly before Sentinel’s collapse. (Id. ¶ 37(e).) Pursuant to a
stipulation, the Trustee and Sentinel have jointly agreed to a Capped Amount of $400,000.00,
which is a reduction to the Capped Amount set forth in the First Distribution Order. (Id.)
e. 	Goldman Sachs & Co. (“Goldman”) (Claim No. 5441)
Goldman filed an unliquidated prophylactic claim based on the close-out of certain
transactions following the commencement of the MFGI liquidation. (Id. ¶ 37(f).) As Goldman
noted in its proof of claim, the close-out of these positions resulted in a net payable to MFGI, but
it filed the claim in the event that the netting and setoff was determined to be impermissible
under relevant law. (Id.) The Trustee and Goldman are negotiating the amount of the payment
owed to MFGI as a result of these transactions, and once resolved, this claim will be withdrawn.
(Id.) This claim was capped at $0.00 in the First Distribution Order. (Id.)
D. 	The Sale Agreement
The principal terms of the Sale Agreement are as follows:
a) 	Upon approval of the Sale Agreement by the Court, on the Closing Date, the SPA
Trustee will assign to the Assignee all of the Trustee’s rights, remedies, titles, and
interests in the MDL Assigned Claims, the E&O Assigned Claims, the D&O
Assigned Claims, the Fidelity Bond Assigned Claims, the Fiduciary Policy
Assigned Claims, the MFGUK Assigned Claim, the Dooley Assigned Claims, the
LCH Assigned Claim, the Assigned Cash (which includes all cash under the
Trustee’s control except for required reserves and the amount necessary to
complete the Final Distribution), the Remnant Assigned Assets, the Assigned
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 15 of 22

16
Records (including, but not limited to, the Trustee’s rights and interests in all non-
privileged documents, data, and systems services contracts), and other Assigned
Rights, as defined in the Sale Agreement, free and clear of all liens, claims,
encumbrances, and interests;
b) 	In exchange, the MFGH Entities will waive remaining distributions on their over
$1.16 billion of general unsecured claims sufficient to allow the Trustee to make
the Final Distribution to the Other Unsecured Creditors; and
c) 	The Assignee will assume the liabilities and obligations of the Trustee and the
MFGI estate under the agreements with the Customer Representatives and the
Assigned Records, including the obligation to respond to discovery requests and
preserve documents, data, and systems with respect to the MDL Assignment
Claims, the E&O Assigned Claims, the D&O Assigned Claims, the Fidelity Bond
Assigned Claims, the MFGUK Assigned Claim, the Dooley Assigned Claims, the
LCH Assigned Claims, and any other litigation or proceedings relating to the
Assigned Rights.
(Id. ¶ 39.)
II. 	DISCUSSION
A. 	Approval of the Sale Agreement
Section 363(b)(1) of the Bankruptcy Code provides that “[t]he trustee, after notice and a
hearing, may use, sell, or lease, other than in the ordinary course of business, property of the
estate . . . .” 11 U.S.C. § 363(b)(1). In approving a transaction conducted pursuant to section
363(b)(1), courts consider whether the trustee exercised sound business judgment. See In re
Chateaugay Corp., 973 F.2d 141, 144–45 (2d Cir. 1992) (affirming bankruptcy court’s approval
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 16 of 22

17
of asset sale under section 363(b) because good business reason supported the sale); see also
Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1072 (2d Cir.
1983) (“The rule we adopt requires that a judge determining a § 363(b) application expressly
find from the evidence presented before him at the hearing a good business reason to grant such
an application.”); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003)
(holding that the standard for approval of a motion under section 363 is whether there is a “good
business reason” to support the motion).
The business judgment of a trustee is entitled to great deference. See In re Borders Grp.,
Inc., 453 B.R. 477, 483 (Bankr. S.D.N.Y. 2011). A trustee generally satisfies the business
judgment standard if he “acted on an informed basis, in good faith and in the honest belief that
the action taken was in the best interests of the company.” In re Integrated Res., Inc., 147 B.R.
650, 656 (Bankr. S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
1985)). “Courts should not generally interfere with business decisions absent a showing of ‘bad
faith, self-interest, or gross negligence.’” Borders, 453 B.R. at 482 (quoting Integrated Res., 147
B.R. at 656).
The Trustee asserts that he has established that approval of the Sale Agreement is
warranted under section 363(b) of the Bankruptcy Code. (See Tr. Motion ¶¶ 40–57.) According
to the Trustee, he has determined in his sound business judgment that the transaction
contemplated by the Sale Agreement “represents the best means of immediately monetizing and
maximizing the value of the remaining assets and potential recoveries of the MFGI estate for the
benefit of the MFGI’s creditors without the delay, expense, risk, and uncertainty of further
litigation.” (Id. ¶ 43.) Moreover, the Trustee asserts that a private sale to the Assignee is
appropriate because “[MFGH] [is] the only purchaser who has expressed a willingness to
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 17 of 22

18
purchase the Assigned Rights and assume the Assumed Liabilities and Obligations, [and] . . . is
also in the uniquely favorable position of having familiarity with the Assigned Rights, and
having participated in the litigation and settlement negotiations to date.” (Id. ¶ 46.)
Furthermore, the Trustee claims that: (i) he has provided interested parties with adequate and
reasonable notice (id. ¶ 47); (ii) the consideration provided by the parties is fair and reasonable
(id. ¶¶ 48–49); (iii) both parties are proceeding in good faith (id. ¶ 50); (iv) the insurance claims
are fully assignable to the Assignee, notwithstanding anti-assignment clauses contained in certain
of the policies because the assignments are made after a loss has occurred and became a cause of
action (id. ¶ 51–52); (v) assignment of the Assigned Rights free and clear of liens, claims, and
encumbrances is appropriate (id. ¶ 53); (vi) the assignment to the Assignee should be final, and
the Assignee should obtain the protections of section 363(m) of the Bankruptcy Code (id. ¶¶ 54–
55); and (vii) waiver of the fourteen-day stay imposed by Rule 6004(h) of the Federal Rules of
Bankruptcy Procedure (the “Bankruptcy Rules”) is appropriate (id. ¶ 56).
The Plan Administrator asserts that the Court has broad authority under the Bankruptcy
Code to approve and authorize the Plan Administrator to enter into the Sale Agreement. (MFGH
Motion ¶ 12 (citing 11 U.S.C. § 1142(a)–(b)).) According to the Plan Administrator, the relief
requested in the Motions is consistent with, and will facilitate the implementation of, the
Debtors’ chapter 11 plan of liquidation (the “Plan,” ECF Doc. # 1382). (MFGH Motion ¶ 13.)
Specifically, the Plan provides the Plan Administrator broad authority to take any action
“deemed by the Plan Administrator to be necessary and proper to implement the provisions of
the Plan.” (Id. (quoting Plan § IV.C).) The Plan Administrator asserts that it has evaluated the
proposed transaction and concluded, based on its reasonable business judgment, that entering
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 18 of 22

19
into the Sale Agreement is likely to maximize the value of the Debtors’ estates for the benefit of
the MFGH Entities. (Id. ¶ 14.)
B. 	Abandonment of Records
Section 554(a) of the Bankruptcy Code provides that “[a]fter a notice and hearing, the
trustee may abandon any property of the estate that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a). Abandonment may not be
authorized without “the requisite showing that the asset in question was of inconsequential value
and benefit to the estate, and without ascertaining that the trustee’s determination to that effect
‘reflect[ed] a business judgment made in good faith, upon a reasonable basis and within the
scope of his authority under the Code.’” In re Sullivan & Lodge, Inc., No. C03-00588 (CRB),
2003 WL 22037724, at *4 (N.D. Cal. Aug. 20, 2003) (quoting In re Wilson, 94 B.R. 886, 888
(Bankr. E.D. Va. 1989)). The notice and hearing requirement ensures that interested parties have
an opportunity to object to a proposed abandonment. 5 C OLLIER ON BANKRUPTCY ¶ 554.01
(Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2014). Bankruptcy Rule 6007(a) provides
that “[u]nless otherwise directed by the court, the trustee or debtor in possession shall give notice
of a proposed abandonment or disposition of property to the United States Trustee, all creditors,
indenture trustees, and committees elected pursuant to § 705 or appointed pursuant to §1102.”
FED. R. BANKR. P. 6007(a). Bankruptcy Rule 6007(a) also provides that a party in interest may
object within 14 days of the mailing of the notice. See id.
The Trustee asserts that he determined in his sound business judgment that abandonment
of the Abandoned Records is appropriate because they are no longer necessary (id. ¶¶ 60–61),
and abandonment of such records “will allow him to expeditiously close the estate following
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 19 of 22

20
consummation of the Sale . . . Agreement (if approved), completion of the Final Distribution, and
resolution of the Disputed Claims” (id. ¶ 62).
C. 	Approval of the Final Distribution
Sections 502, 507, and 726 of the Bankruptcy Code are made applicable to a SIPA
liquidation pursuant to section 78fff(b) of SIPA. See 15 U.S.C. 78fff(b) (“[A] liquidation
proceeding shall be conducted in accordance with, and as though it were being conducted under
chapter 1, 3, and 5 and subchapters I and II of chapter 7 of Title 11.”). Distribution priorities in a
SIPA liquidation proceeding shall be as provided under section 726 of the Bankruptcy Code. See
15 U.S.C. § 78fff(e). Under Bankruptcy Code section 726(a), property shall be distributed first
in respect of “claims of the kind specified in, and in the order specified in, section 507,” and then
on allowed unsecured claims. 11 U.S.C. § 726(a). Bankruptcy Rule 3009 provides that “[i]n a
chapter 7 case, dividends paid to creditors shall be paid as promptly as practicable.” FED. R.
BANKR. P. 3009.
If the Sale Agreement is approved, the Trustee requests that the Court authorize the
Trustee (upon consummation of the Sale Agreement) to:
a) 	Establish a final unsecured claims reserve in the amount of approximately $48.7
million (if the Final Distribution Percentage is 95%) or $46.4 million (if the Final
Distribution Percentage is 94%) for all Other Unsecured Claims; which shall
include approximately: (i) $41.3 million (if the Final Distribution Percentage is
95%) or $39.3 million (if the Final Distribution Percentage is 94%) eligible for
distribution to the Other Unsecured Creditors; and (ii) $7.5 million (if the Final
Distribution Percentage is 95%) or $7.1 million (if the Final Distribution
Percentage is 94%) to establish reserves for the Disputed Claims on a pro rata
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 20 of 22

21
basis to protect the interests and due process rights of the holders of those claims
(the “Final Unsecured Claims Reserve”);
b) 	Establish a reserve in the amount of 100% of the allowable amount of all claims
with respect to administrative expenses arising between September 1, 2013 and
July 31, 2015 received by the Trustee on or before the Supplemental
Administrative Expense Bar Date, if approved by the Court (the “Administrative
Expense Claims Reserve”);
c) 	Release to the Plan Administrator reserves that are no longer necessary from the
Priority Claims Reserve, the Unsecured Claims Reserve, and the Second
Unsecured Claims Reserve in the amounts of $0.35 million, $2.09 million, and
$1.88 million, respectively;
d) 	Make a third and final distribution to holders of the Other Unsecured Claims as of
the Record Date of August 7, 2015, or to holders of Disputed Claims as of the
same Record Date, if and when such claims become allowed claims; and
e) 	Require claimants to cash all final distribution checks within the ninety-day
expiration period.
(Id. ¶ 63.) According to the Trustee, approving these means for implementing the Final
Distribution will allow a prompt distribution to be made to Other Unsecured Creditors (see id.
¶ 64), is consistent with the Court’s Prior Distribution Orders (id. ¶¶ 68–69), and is permitted
under section 726 of the Bankruptcy Code (id. ¶¶ 70–73).
III. 	CONCLUSION
The Trustee and MFGH have established by uncontroverted evidence that entering into
the Sale Agreement reflects the appropriate exercise of their sound business judgment. The
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 21 of 22

22
parties were represented by experienced counsel who negotiated the terms of the Sale Agreement
over the course of several months. (See Hayes Decl. ¶¶ 26–27.) Despite providing broad notice
of the Motions to interested parties, no party has objected to the Motions or raised any concern
that the Sale Agreement was not the product of good faith, arm’s length negotiations. Nor has
any party objected to the adequacy of the consideration provided under the Sale Agreement. The
terms of the sale are fair, reasonable and in the best interests of the creditors of all of the debtors’
estates.
With respect to the Abandoned Records, the Trustee has provided notice of his intention
to abandon the systems and records and established a sound business reason to support his
decision—to jettison unnecessary systems and records in order to expeditiously close the SIPA
Proceeding. The Motions properly provide for transfer and preservation of the records necessary
for any pending or potential litigation.
Likewise, the scheme for implementing the Final Distribution is reasonable and
appropriate for the Trustee to close the SIPA Proceeding.
For all of the foregoing reasons, the Motions are GRANTED. A separate Order will be
entered.
Dated: August 19, 2015
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
11-15059-mg Doc 2122 Filed 08/19/15 Entered 08/19/15 15:27:14 Main Document
Pg 22 of 22