Former FBI Director Freeh Seeks $1 Million Fee for MF Global Work

   By Joseph Checkler 
 

Former FBI Director Louis J. Freeh wants a $1 million fee for leading the bankruptcy wind-down of MF Global Holdings Ltd., the failed commodities firm led by former New Jersey Gov. Jon Corzine.

In a Monday filing with U.S. Bankruptcy Court in Manhattan, lawyers for Mr. Freeh said he brought "instant credibility" when he was assigned to serve as the firm's Chapter 11 trustee in November 2011 shortly after the firm collapsed under the weight of Mr. Corzine's large bets on European debt.

They asked for the $1 million in addition to more than $10 million billed by Mr. Freeh and his legal team from Pepper Hamilton LLP for their hourly work on the case. Mr. Freeh's hourly rate is $900.

"At the time of his appointment, it was widely reported that creditors of the Debtors would not receive any distribution on their claims," Mr. Freeh's lawyers said. "After 18 months at the helm, however, the Trustee is proud to report that the Debtors' creditors ultimately are expected to receive distributions in excess of $1 billion."

The personal award must be approved by Judge Martin Glenn.

In court papers, Mr. Freeh's lawyers said the Bankruptcy Code allows him to request nearly $4 million for his work as MF Global's Chapter 11 trustee, based on how much creditors are recovering in the case. Chapter 11 trustees are appointed by the bankruptcy court to take the helm of a debtor company when there's evidence of fraud or mismanagement.

Bernstein Shur's Robert Keach, a bankruptcy attorney who's been tasked with monitoring fees in the AMR Corp. (AAMRQ) Chapter 11 case, said Mr. Freeh has made a "billing judgment" to seek about a quarter of what the Bankruptcy Code allows.

Mr. Keach said Mr. Freeh, who is currently investigating alleged misconduct in the settlement program BP PLC (BP) set up to compensate victims of the 2010 Gulf of Mexico oil spill, may have sought the lower fee to avoid scrutiny.

Lawyers for Mr. Freeh said they would explain their rationale in a later court filing.

Mr. Freeh was put in charge of MF Global just after its October 2011 collapse, while a separate trustee, James W. Giddens, was tapped to unwind the firm's brokerage under the authority of the Securities Investor Protection Act. Mr. Freeh stepped down as Chapter 11 trustee in June.

As he led MF Global's dismantling, Mr. Freeh helped make key deals to free up money for creditors and investigated the events that led to the firm's sudden collapse. He eventually sued Mr. Corzine, saying the former Goldman Sachs Group Inc. (GS) chairman used "risky trading strategies" that sapped the company's liquidity. While the collapse initially exposed a $1.6 billion shortfall in customer accounts, Mr. Freeh has said those funds should be fully restored.

Mr. Corzine has denied the claims leveled against him in the lawsuit, which was turned over to a litigation trust after Mr. Freeh stepped down as MF Global's Chapter 11 trustee.

Mr. Freeh was also instrumental in negotiating a three-way settlement with MF Global's U.K. unit and Mr. Giddens, the brokerage trustee, that serves as the basis of a creditor-payment plan for MF Global filed by a group of hedge funds.

Under the plan, holders of about $1 billion in MF Global's unsecured bonds stand to recover between 12 cents and 42 cents on the dollar for their claims, while creditors with claims stemming from a $1.2 billion revolving loan would recover between 27 cents and 80 cents.

Individual customers of MF Global's brokerage, which is still being managed by Mr. Giddens, have already recovered most of their funds that were caught up in the firm's collapse.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at [e-mail]

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