Global Finance Deal of the Year, Private Restructuring: MF Global
Honorees: Morrison & Foerster, Weil, Gotshal & Manges, Hughes, Hubbard & Reed, Slaughter and May, Pepper Hamilton
MF Global started badly and ended worse. Within two years of its being spun out of the Man Group in 2007, regulators imposed large fines for risk supervision failures, the Commodity Futures Trading Commission levied a $10 million penalty, and analysts whispered about on-going liquidity fears.
Then, in the fall of 2011, having dipped into customers’ funds to stay solvent, MF Global, which had 38,000 customers, £100 billion of notional value, and 3,000 trading positions, collapsed. It was the eighth-largest corporate failure in U.S. history. When it filed for Chapter 11 protection in October 2011, MF Global had operations in the U.S., U.K., Ireland, Switzerland, Singapore, Australia, Hong Kong, Canada, India, Mauritius, Japan, and Taiwan, and winding it down proved that in the 21st century even bankruptcy is a multinational practice.
Much of the work was done by coalitions of law firms. In the U.S., former Federal Bureau of Investigation director Louis J. Freeh was appointed bankruptcy trustee, and Morrison & Foerster was lead counsel. MoFo assembled a multidisciplinary, transatlantic team, which as part of its efforts filed over 100 claims seeking more than $3 billion from MF Global affiliates and subsidiaries. It also undertook an investigation into the collapse, and into potential claims and causes of action, filing a report with the bankruptcy court that attributed blame to actions and failures of former management.
Meanwhile, in London, Weil represented KPMG, the Joint Special Administrators to MF Global. This is the first Special Administration under new U.K. laws introduced to speed bankruptcy proceedings in the wake of the Lehman Brothers failure.
And on both sides of the Atlantic, Hughes, Hubbard & Reed served as the SIPA (Securities Investor Protection Act) trustee, retaining Slaughter & May to handle the British end of the dispute. This was a trilateral effort to find and capture MF Global’s assets and then battle over how much went to customers and other creditors. This was a logistical and equity nightmare—more than 1.6 million open futures and options positions had to be closed spread over 100 exchanges. In the end the parties worked out a $1.4 billion global settlement.