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Koutoulas Objection to Motion to Approve Liquidatio - Main Document

Koutoulas Objection to Motion to Approve Liquidatio - Main Document

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Published by: englishbob618 on Nov 16, 2011
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James L. Koutoulas, Esq. (
Pro Hac Vice Pending
)190 S. LaSalle St., #3000Chicago, IL 60603(312) 836-1180James L. KoutoulasVincent P. Schmeltz III (
Pro Hac Vice Pending
)Deborah L. Thorne (
Pro Hac Vice Pending
)Kathleen L. Matsoukas (KL-1821)BARNES & THORNBURG LLPOne N. Wacker Drive, #4400Chicago, IL 60606(312) 357-1313
 Attorneys for Commodity Customer Coalition
et al.,
Debtors.In re:MF GLOBAL INC.,Debtor.Chapter 11Case No. 11-15059 (MG)Jointly AdministeredCase No. 11-02790 (MG) (SIPA)
Certain commodity broker customers (the “Commodity Customer Coalition”)
of MF
Global Inc. (“
”), hereby object to the Trustee’s Motion for an Order: (1) establishing parallel
claims processes for commodity futures customer and securities customer claims; (2) approving the
The Commodity Customer Coalition speaks on behalf of over 7,000 MF Global Customers. Within thatgroup, about 80 representatives have formally retained Mr. Koutoulas as pro bono counsel, including, a hogfarmer from central Illinois, as well as those other customers listed on Exhibits A and B, have more than $25million held in customer segregated accounts frozen.
11-02790-mg Doc 251 Filed 11/16/11 Entered 11/16/11 14:00:47 Main DocumentPg 1 of 6
form and manner of the publication and mailing of the notice of commencement of this proceeding;(3) specifying procedures and forms for the filing, determination, and adjudication of claims; (4)fixing a date for the entry of a meeting of customers and other creditors; and (5) fixing an interimreporting procedure pursuant to SIPA. In support of their objection, the Commodity CustomerCoalition states:1.The Commodity Customer Coalition (
“CCC”) is a grass roots organization and
represents a growing number of former MF Global clients, currently numbering over 7,000. TheCCC is organized by a volunteer group of commodity futures professionals who are working on apro bono basis to represent MF Global customers in the bankruptcy process. In a very short time,the group has created electronic communication networks, a website, organized thousands of customers with frozen assets, and is working on behalf of all MF Global commodity account holdersto ensure the swift and complete return of these assets.2.In addition to authoring a white paper on the bankruptcy crisis for non-financialprofessionals, the CCC has already filed two motions with the bankruptcy court. One seeks toprotect the primacy of customer segregated funds over the claims of creditors, while the other seeksa swift alternative claims process to the arduous one proposed by the SIPC Trustee. The CCC hasalready developed an outline to such a plan. The CCC is also working in support of the motion filedby Thomas Butler seeking the immediate release of 85% of customer funds and has supported the
National Introducing Broker Association’s efforts on behalf of introducing brokers. The CCC also is
seeking the formation of an ad-hoc committee to represent the interest of former MF Globalcustomers in the bankruptcy process
in both matters being administered by this Court. The CCC
also will seek to work with Mr. Rosen’s group of 40 NYMEX floor brokers, as well as any other
interested MF Global customers.
11-02790-mg Doc 251 Filed 11/16/11 Entered 11/16/11 14:00:47 Main DocumentPg 2 of 6
3.The Trustee has filed a motion, with nearly no notice, that impacts the rights of allMFGI customers, perhaps irreparably. By implementing a claims process, the Trustee effectivelycements this as a liquidation under the Securities Invest
or Protection Act (“SIPA”), even though a
SIPA Liquidation may not actually be in the best interests of all of 
MFGI’s customers.
There are at least three major flaws in the Trustee’s plan—
although the CommodityCustomer Coalition has only had a few hours to exami
ne the Trustee’s seventy
-six page submissionand prepare this response (Exhibit G is the Trustee
s plan). The Commodity Customer Coalitionrespectfully suggests that it could craft a more efficient plan that returns customer funds far more
quickly than the Trustee’s plan and already has a
n outline of this plan that it is prepared to discusswith the Court at this hearing.5.The first, most glaring, flaw is that the plan (and a SIPA liquidation, generally) doesnot necessarily account for the priority that commodity investors should receive.
Commoditiesinvestors do not necessarily have a right to insurance under the SIPA, in the same manner securities
investors do. Instead, commodities investors rely on the concept of “segregated accounts,” which
are supposed to be held inviolate under CFTC Regulation 4.20(c). They also rely on the right of 
customers in a futures commission merchant (or “FCM”) to receive a first
-priority right of recoveryunder 11 U.S.C. § 766(h) and 17 C.F.R. § 190.08.6.Yet, under a SIPA liquidation, it is not clear that Securities Investor Protection
Corporation (“SIPC”) agrees that commodity customers will receive a first
-priority right of recovery.
A SIPA liquidation is the tail wagging the dog, given that SIPC only has a stated guarantee of approximately400 securities accounts, as compared to over 50,000 active commodity accounts and upwards of 150,000 totalcommodity accounts. Moreover, neither the Trustee nor SIPC has taken a position as to whether the cash, T-Bills, and other cash equivalents held in commodity accounts are covered by SIPC, nor has the Trusteedelineated his view as to how the duties of the Trustee in liquidating a commodity futures merchant may beinconsistent with SIPA.
11-02790-mg Doc 251 Filed 11/16/11 Entered 11/16/11 14:00:47 Main DocumentPg 3 of 6

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