KPMG sees MF Global legal action slowing payments

London: MF Global’s European administrator KPMG said it won’t be able to set payouts for creditors of the defunct broker until a raft of legal cases that start in June and could take years are resolved.

KPMG said on Thursday the case which sees the US arm of MF Global demanding $639 million from the British part of the business will open in court next month.

MF Global UK is disputing a claim by MF Global Inc that the sum is drawn from funds ringfenced when the broker collapsed in October, a claim that would ensure an earlier pay-out for US creditors but less upfront for European clients.

“Unfortunately resolving a dispute over such a large claim against the segregated pot is likely to have a material impact on our ability to make further distributions to segregated clients,” KPMG partner Richard Heis said.

Creditors to MF Global are classified as either segregated, which should ensure earlier payment, or unsegregated which puts them further back in the queue.

MF Global Inc’s has said it should be treated as a segregated client while KPMG thinks the opposite.

The case, which a source close to KPMG said could take years, is one of several the administrator is pursuing as it tries to claw back $2 billion for 6,000 of MF Global’s former European clients.

KPMG is also seeking legal clarity from British courts on a $419 million demand by MF Global Finance USA, the broker’s holding company. The claim, rejected by KPMG, was due to appear in court after August, it said.

Payouts also hang on a case which has KPMG teaming up with PricewaterhouseCoopers, the administrator of Lehman Brothers, to try to speed up the return of assets and cash to former clients of both failed brokers.

KPMG said earlier this month it was working with PWC to establish whether unsecured funds can be “traced” and treated as if they were secured, following a ruling in February by Britain’s Supreme Court.

“As this issue affects both Lehman and MF Global UK, the special administrators will liaise with Lehman administrators with the aim of mitigating the costs of this exercise and maximise efficiency,” KPMG said three weeks ago.

KPMG is also claiming $300 million from the US administrator on behalf of MF Global UK clients and creditors.

MF Global, a US-based futures broker, collapsed on 31 October last year after making bad bets on European sovereign debt.