The investment world was rocked by news of MF Global filing for Bankruptcy on November 1st. The bankruptcy is reported to be the 8th largest bankruptcy in United States history. The bankruptcy has caused a media frenzy due to the similarities to the collapse of Lehman and the 2008 financial crisis.
Customers of MF Global Ltd.’s broker-dealer are now waiting to see how the liquidation of the firm will unfold. Bloomberg reports that the broker-dealer “will be liquidated under the supervision of the same trustee who is unwinding Lehman Brothers Holdings Inc.’s brokerage, a federal judge ruled.” That trustee is James Giddens of the law firm Hughes Hubbard & Reed LLP. The Securities Investor Protection Corporation (SIPC) is responsible for overseeing the liquidation process.
According to Bloomberg, the SIPC “said the broker-dealer might not be able to meet its obligations to customers who have accounts with the company.” The SIPC, says Bloomberg, was “…created by Congress in 1970 after brokerage failures in the late 1960s, gets money from brokerage firms to pay investors as much as $500,000 each for their losses.” The SIPC’s role will be to oversee the process and potentially pay out some monies to damaged clients of MF Global’s broker-dealer.
The day after news of the bankruptcy and the impending liquidation of the brokerage, customers were already flooding the SIPC with calls. An attorney for the SIPC told Bloomberg what those concerned customers should be doing at this time while the SIPC and the trustee Mr. Giddens are collecting information and establishing a process for collecting and handling claims. He said, “You tell them to sit tight, and start gathering their information so they can file claims. Canceled checks, trade confirmations, account statements.” It has also been reported that websites will be established by the SIPC and Giddens to help facilitate the process and that customers will be mailed claim forms.
There is another set of investors that may be concerned with the news of MF Global’s bankruptcy. MF Global has recently offered a series of bonds including senior unsecured debt notes to the public. For MF Global’s most recent senior unsecured debt note offering they stated in a press release that they, “[intended] to use at least $100 million of the net proceeds of this offering to repay a portion of its outstanding indebtedness under its $1.2 billion revolving credit facility and to use the remainder for general corporate purposes.”
The stated plan for using this money, in light of the bankruptcy filing, seems to indicate they were making this offering at least partly to stave off their financial woes. The question becomes were investors in the products aware of the precarious position that MF Global seems to have been in and did the firms that sold the bonds do the proper due diligence before offering the investment to the public. Firms underwriting and selling this type of note are required under securities regulations to perform adequate due diligence and are responsible for any misrepresentations made about the product. If they fail in their responsibilities, the customer may have a valid claim against the firm to recover their investment losses.
On October 31st Fitch ratings downgraded all of the senior unsecured debt and stated that the ratings downgrade impacted $2.2 billion of senior unsecured debt. Moody’s also recently downgraded the senior debt.
The most recent bond offering was “$325 million aggregate principal amount of 6.250% senior unsecured notes due 2016.” According to SEC documents the sole book-running manager for the offering is Jefferies and Company, Inc. and the co-managers are BofA Merrill Lynch, BMO Capital Markets, Commerzbank, Natixis, Lebenthal & Co., LLC, Sandler O’neill + Parnters, L.P., and US Bancorp.
Additionally documents publicly available from the SEC show 2 other offerings for “senior, unsecured obligations” that had prospectuses filed this year. One of the offerings are “3.375% Convertible Senior Notes due 2018” that sought to raise $325 million. For that offering the prospectus shows that the joint book-running managers are Goldman, Sachs & Co. and Citi and the Co-Managers are BofA Merrill Lynch, J.P. Morgan, Deutsche Bank Securities and RBS. The second is a $250 million offering of “1.875% Convertible Senior Notes due 2016.” The joint book-running managers for this offering are Goldman, Sachs & Co., Citi, Deutsche Bank Securities, BofA Merrill Lynch, J.P. Morgan, and Sandler O’Neill + Partners, L.P.
If you invested in MF Global senior unsecured debt or convertible senior notes, are concerned about your current or potential losses, and would like to speak to a securities attorney about your potential to recover you investment, please call our Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.