Freeh Appointed Trustee in MF Bankruptcy

Louis J. Freeh, the former Federal Bureau of Investigation director, was appointed Chapter 11 trustee in the MF Global Holdings Ltd. (MF) bankruptcy after the company and creditors said one person should take charge of recovering assets.

Such a trustee would coordinate globally with regulators and advocate for a prompt return of creditor funds, according to court filings. A trustee to guide the search for assets would be more cost-effective than the company or its lenders, MF Global and its creditors have said. The appointment was filed yesterday.

Customer accounts of MF Global Inc., the broker-dealer unit of parent MF Global Holdings believed to hold $5.45 billion, were frozen Oct. 31. That day, the New York-based company reported a shortfall in funds required to be segregated under U.S. Commodity Futures Trading Commission rules. About $1.2 billion in customer funds are believed to be missing, according to James Giddens, the trustee appointed to liquidate the broker-dealer and distribute refunds to its customers.

MF Global Holdings, which was run by former New Jersey Governor and ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed for bankruptcy protection to apportion returns to its creditors, including bondholders and lenders.

FBI Director
Freeh served as director of the FBI under U.S. President Bill Clinton from 1993 to 2001. He had previously worked as an FBI agent and later became a federal prosecutor and judge, appointed to the bench in 1991 by President George H. W. Bush.

His appointment as MF Global’s trustee must be approved by U.S. Bankruptcy Judge Martin Glenn, who is presiding over the bankruptcy. The request was made in court papers filed in Manhattan.

Freeh stepped down from the FBI in 2001. In 2007, he formed a New York-based risk management company, Freeh Group International Solutions LLC, and started a law firm, Freeh, Sporkin & Sullivan LLP. Since then, he’s served as an independent monitor in a Justice Department probe of Daimler AG in 2010, and headed a 2008 investigation of energy trading losses that led to the bankruptcy of SemGroup LP.

Freeh was hired this week to conduct an independent probe of the child sex-abuse scandal at Pennsylvania State University. Additionally, his company was retained to review security for the SAT college-admissions test, according to the Educational Testing Service of Princeton, New Jersey, and the New York-based College Board.

No Conflicts
His firms don’t have any conflicts that should prevent him from being trustee for MF Global, Freeh said.

“I do not personally have any connection with any interested party in these cases,” Freeh declared in court papers, citing minor exceptions including work his law firm has done for Bank of America Corp. (BAC), making up less than 1 percent of its revenue to date.

Freeh must obtain a bond valued at no less than $26 million, according to court records. Such bonds are required to be posted within five days of a trustee being selected, according to a handbook for trustee’s posted by the Justice Department.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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