Two lawmakers prodded the bankruptcy trustee in charge of unwinding MF Global Holdings Ltd. to drop his plan to pay bonuses to top executives who were at the securities firm when it collapsed.
In a letter to former Federal Bureau of Investigation Director Louis Freeh, Sen. Jon Tester (D., Mont.) said it would be "outrageous" to proceed with a proposal to a bankruptcy judge that could result in payouts of several hundred thousand dollars each for MF Global's chief operating officer, finance chief and general counsel. The size of the bonuses would depend on their job performance in helping Freeh maximize value for creditors of the company.
"Rather than reward executives in the hopes of being able to pay back creditors, I urge you to forgo executive bonuses and instead use these funds to repay the farmers and ranchers whose trust was so betrayed by MF Global," Tester wrote. "I look forward to your reconsideration of this decision."
Montana is home to farmers and ranchers who invested in the futures market through MF Global but are likely to suffer losses because of the estimated $1.6 billion shortfall in customer accounts that emerged after the New York company filed for Chapter 11 bankruptcy protection on Oct. 31.
The Wall Street Journal reported Friday that Freeh is planning to ask the bankruptcy-court judge in charge of the case to approve potential bonuses for Bradley I. Abelow, Henri J. Steenkamp and Laurie R. Ferber, according to people familiar with the situation. The payouts likely would be made in pieces throughout 2012. As many as 20 or so other MF Global employees now working for Freeh also would be eligible for possible bonuses. Details could be filed as soon as this month.
Sen. Amy Klobuchar (D., Minn.) said in a separate letter to Freeh that the plan is "unacceptable" until numerous civil and criminal investigations into MF Global's demise are finished and missing customer money is found. She is a member of the Senate Agriculture Committee, which is conducting a probe of the financial firm's demise.
"These same executives were at the helm of MF Global when it collapsed," Ms. Klobuchar wrote. "Issuing bonuses with the company's holdings sends the wrong message to customers already skeptical of the bankruptcy process."
A spokesman for Freeh said Sunday in a statement that "the trustee has noted the comments" made by the senators, but "has not made any decisions" on the bonuses. He described the issue as one that comes up "routinely" in Chapter 11 cases.
A lawyer working for Freeh on the case also said Friday that keeping current staff is the "most cost-effective way" to protect the interests of creditors snarled by MF Global's bankruptcy.
Without help from Messrs. Abelow and Steenkamp and Ms. Ferber, Freeh likely would have to spend more on accountants and consultants to sift through MF Global's tangled financial statements, according to people close to Freeh.
The three executives are the highest-ranking MF Global employees among about 300 still working at what is left of the company. Chief Executive Jon S. Corzine, the former New Jersey governor and Goldman Sachs Group Inc. chairman whose bets on bonds of troubled European countries led to a run on MF Global last fall, resigned in November.
Tester said federal bankruptcy law limits Freeh's ability to reward bonuses to former MF Global executives who kept their jobs. Sen. Charles Grassley of Iowa, the top Republican on the Senate Judiciary Committee, raised similar concerns in a statement Friday. U.S. law sharply restricts "retention" bonuses to executives for sticking with distressed companies. Some companies in bankruptcy cases carefully craft "incentive" plans with specific performance targets to avoid running afoul of the law.
Freeh's bonus plan at MF Global would likely need to include performance-based targets deemed challenging enough for a judge to conclude that the proposal is an "incentive" plan rather than "retention" payouts for Messrs. Abelow and Steenkamp, Ms. Ferber and the other employees who could get bonuses.
A lawyer for Abelow declined to comment. After the Chapter 11 filing, Abelow agreed to cut his annual salary to $60,000. For the fiscal year ended March 31, 2011, he got total compensation of $7.6 million, including a salary of $829,545, according to a securities filing.
A lawyer for Steenkamp couldn't be reached. Last week, a lawyer for Ms. Ferber told the Journal she is "working hard to assist the trustee" in the bankruptcy case. Her "personal interests are completely aligned with those of MF Global," the lawyer added. The attorney declined further comment
No one at MF Global has been charged with wrongdoing. Messrs. Corzine, Abelow and Steenkamp told lawmakers last late year they didn't do anything improper and were uncertain exactly how the shortfall occurred.
While MF Global customers have received varying amounts of their money back, many have received about 72 cents for every dollar they had at the securities firm when it collapsed. Prosecutors, regulators and others have been interviewing MF Global employees, but hopes for more recoveries have dimmed.
This story first appeared on WSJ.com.