Jon Corzine and other former insiders of collapsed brokerage MF Global can tap another $10 million of insurance funds to defend lawsuits accusing them of hastening the firm’s downfall, a U.S judge said on Monday.
Judge Martin Glenn granted the request from Corzine and the others at a hearing in U.S. Bankruptcy Court in New York, raising to $40 million from $30 million the cap on what the defendants can draw. Glenn authorized roughly $3.7 million more to pay the legal fees of defendants no longer involved in the cases.
However, the judge was irked at the request, saying he had expected the initial $30 million to cover most of the litigation.
“Instead it got you to the start of discovery,” Glenn said. “I’m startled.”
More money devoted to legal fees means less is available to pay other MF Global creditors. While customers of the firm’s broker-dealer unit will receive full recovery, it is unclear how much will be available for unsecured creditors, who have not begun receiving payouts.
Corzine, a former New Jersey governor and senator, was MF’s chief executive when it collapsed in 2011. About $1.6 billion in customer accounts went missing after the firm improperly used it to try to plug liquidity gaps as it teetered on the brink.
Corzine, former MF Global Chief Operating Officer Bradley Abelow and other erstwhile executives have been accused in civil lawsuits of mismanaging the business.
James Giddens, the trustee for MF’s former broker-dealer unit, and Bruce Bennett, a lawyer for its defunct parent company, said in court papers last week that the defendants are mounting exorbitant legal bills through excessive defense tactics. They urged Glenn not to grant the request unless reporting requirements are put in place to ensure adequate oversight and cost control.
Glenn said he would not deny the executives the right to afford their defense. But he criticized how much they have spent so far and, acknowledging that even the $40 million figure may not ultimately be enough, urged the defendants and the trustees to negotiate a final number and agree on how to monitor rising costs.
“If possible, avoid having to come back to court with yet another contested matter,” Glenn added.
(Reporting by Nick Brown. Editing by Andre Grenon)