MF Global Clients Challenge JP Morgan Tactics in Bankruptcy

Former clients of MF Global are alleging that JP Morgan is side stepping their rights in the debt recovery process of the investment firm’s bankruptcy, according to the New York Post.

JP Morgan gave MF an $8 million loan the day they declared bankruptcy. This loan along with other loans makes then the leading creditors.

A group of clients, represented by James Kloutus head of a Chicago commodities firm, are challenging a lien and other protections which would give JP Morgan preferential access to MF Global’s assets in bankruptcy court.

The smaller client’s represented by Kloutus have lost a great deal in MF Global’s bankruptcy. MF is accused of failing to segregate individual client accounts, which would have protected them from bankruptcy, from company funds. Kloutus is requesting that customers be given priority over any recovered assets.

The judge overseeing MF Global’s bankruptcy, Martin Glenn, has acknowledged that he doesn’t generally grant special rights to one creditor over another and will re-examine the matter.

Most bankruptcy lawyers don’t oversee proceedings of this magnitude; MF’s bankruptcy is the eight largest in U.S. history.

One of the primary objectives of a bankruptcy attorney is to evaluate the client’s debts and determine how to satisfy debtors with remaining assets. After closely examining the indebted person or businesses finances, a bankruptcy lawyer will determine which filing is most acceptable. In the case of MF Global, they filed for Chapter 11 protection.