Reporting of customer capital
Great piece out this morning by our friend John Roe at the Commodity Customer Coalition (CCC) regarding the PFGBest bankruptcy and some details of how things could unfold, though they are careful to say (and we want to reinforce) that it is informational only and does not constitute legal advice. You can read the full piece here, but the highlights are as follows:
1. PFGBest filed chapter 7 (pure liquidation) versus chapter 11 (reorganization with hopes of emerging), meaning the bankruptcy is handled by Chapter 7 law and relevant portions of the Commodity Exchange Act. Our read on this is that futures clients should take top priority in the disbursement of funds, with no exception.
2. PFGBest was a much simpler entity than MF Global, with PFGBest having a few wholly-owned subsidiaries owned by Wassendorf, whereas, in the MFGlobal case, we had to tackle a publicly traded holding company which owned many, many subsidiaries, financing arms, and so forth. Our read on this is that it should be simpler (and quicker) to indentify assets and unwind.
3. Because customer funds are missing, there wasn’t a bulk transfer of customer accounts to another FCM as happens in a “normal bankruptcy” when no customer funds are missing. As such, there can’t be a release of the verified customer funds ($125 million at this point) until the trustee can prepare final statements for customers and determine what assets are available for distribution and the payment of administrative costs – part of the reason they retained some PFGBest staff for 60 days. Our read here is that the customer should see at least 25% of their money within 60 days. This was the first request Attain made of the CCC, to file a motion to release as much of the confirmed money as possible as soon as possible.
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