The representatives of a class of customers who sued MF Global Inc. (MFGI), an affiliate of bankrupt MF Global Holdings Ltd. (MFGH), on Oct. 11 filed a brief arguing that the “soft cap” the bankruptcy court imposed on expenses should not be lifted to permit the payment of defense costs (In Re: MF Global Holdings Ltd., No. 11-15059, Chapter 11, S.D, N.Y. Bkcy.).
In 2011, MFGH filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. As an affiliate of MFGH, MFGI also entered Chapter 11 bankruptcy at that time.
Individual investors who had accounts with MFGI, the arm of the company that handled the money of individual customers, filed a class action against MFGI in the Bankruptcy Court under the Securities Investor Protection Act (SIPA), seeking to recover the money they lost in the bankruptcy.
The customer class for the individual investors contends that the Bankruptcy Court should not raise the “soft cap” to $ 40 million at least until related underlying litigation is resolved.
The customer class argues that its claims trigger coverage under MFGI’s insurance policies covering directors and officers (D&O) and policies covering executives and officers (E&O). Moreover, the customer class contends that the claims amount to $ 632 million, which “far exceeds” the totality of the combined limits on the D&O and E&O policies
MFGI argues that the “soft cap” should be raised from $ 30 million to $ 40 million to pay defense costs associated with a lawsuit filed against it by Sapere Wealth Management.
The customer class maintains that the Bankruptcy Court took that litigation into account when it set the “soft cap” and, therefore, no adjustment is needed at this time.
MFGI has not identified a single specific hardship caused by the “soft cap,” the customer representatives insist. And “changed circumstances do not support unabated defense costs at this time,” the customer representatives add.
The customer class is represented by Andrew J. Entwistle and Joshua K. Porter of Entwistle & Cappucci in New York and Merrill G. Davidoff and Michael Dell’Angelo of Berger & Montague in Philadelphia.