Last week, MF Global Chief Executive Officer Jon Corzine said he had resigned and wouldn't seek any severance payment. But what will befall the firm's 2,900 employees?
For the 1,066 employees who work in the broker-dealer, which is being liquidated by the Securities Investor Protection Corporation (SIPC), they'll receive some of the severance, benefits, back pay and anything else owed to them only after secured creditors and those owed administrative fees get paid, according to bankruptcy lawyers.
A source close to the firm said some employees not part of the brokerage have already been terminated and haven't received severance pay, deferred compensation or bonuses, nor are they assured of receiving health coverage beyond November, raising the potential that non-reimbursable medical expenses will be incurred. MF Global spokespeople didn't respond to e-mail and telephone requests for comment.
The 1,066 U.S. brokerage employees are continuing to work and get paid and have not yet been told when they will be fired. James Giddens, the trustee of the liquidation, is "authorizing appropriate payments" from MF Global Inc., according to a spokesperson for the Office of the Trustee for the Liquidation of MF Global Inc.
Sue for What's Yours
When the employees do get terminated, they can lodge a claim against what's left of the firm according to standard practices outlined in the U.S. Bankruptcy Code covering Chapter 7 liquidations, said Stephen Moeller-Sally, a partner at Boston-based law firm Ropes & Gray LLP. First paid are customers and other creditors, such as those with secured claims and lawyers receiving administrative fees. MF Global had at least $5.45 billion in customer funds at the time it filed for bankruptcy, a spokesperson for the Office of the Trustee for the Liquidation of MF Global Inc. told FINS, although there's currently $600 million unaccounted for.
Employees can claim up to $11,725 each for severance, unused vacation, benefits, etc. If they claim more than that number, they are considered general unsecured creditors and the balance comes out of the general unsecured claims pool, assuming there's any money left.
MF Global staff in London, which employs 700, and Hong Kong, which has about 90, will get paid according to bankruptcy laws in those locations.
If MF Global doesn't notify them of mass layoffs, employees can bring a WARN (Worker Adjustment and Retraining Notification) lawsuit, said James Gassenheimer, a business and bankruptcy litigation lawyer at Ft. Lauderdale, Florida-based law firm Berger Singerman. Under WARN, employers in New York must notify employees 90 days before laying off 33% or more of the workforce or 250 employees from a single employment site.
Employees can sue for eight weeks of pay and benefits to make up for the time they would have had to scout for a new job, said Jack Raisner, an employment lawyer at New York-based law firm Outten & Golden LLP.
MF Global employees may be able to benefit from the fact that their terminations will occur after the company declared bankruptcy. Their claims for WARN pay would be grouped with administrative expenses, so they'd get paid at the same time as the lawyers handling the bankruptcy, Raisner said.
The Lehman Option
The best case scenario for MF Global employees is for their team to be purchased by another company. When Lehman Brothers went bankrupt in 2008, half of the firm's 25,000 employees went to Barclays or Nomura. Those who went to Barclays had their employment contracts assumed by the firm, said Raisner. Lehmanites laid off by Barclays got severance.
People familiar with the matter told The Wall Street Journal that the 36 employees of MF Global's metals trading team may find a home with Macquarie, which is considering buying that business. "If a division or group of the company is bought, the new company may honor certain severance obligations or might choose to keep employees on and honor those arrangements," said Gassenheimer of Berger Singerman.
Employees could also look for jobs at MF Global's competitors. Ten clearing firms have begun taking over MF Global's clients and accounts, which are being transferred at the approval of the bankruptcy judge. Those firms could choose to hire some MF Global employees who have worked with the clients and accounts, said a securities lawyer familiar with the matter.
Great Producers Get Hired
And, of course, big rainmakers can always find a home elsewhere.
"Those brokers who can bring a book of clients with commissions in the one-million-dollar-a-year zone should have no trouble finding a good platform," said George Stein, managing director of Commodity Talent, a New York-based global executive recruiter.
"A number of our clients have standing orders for us to find those and they're not easy to find. Yet MF Global has a number of them and they may now be on the market," he said.
A small number of firms are capitalizing on the volatile environment and upgrading their staff. "There are medium-sized boutique firms in Europe that may be building out on the brokerage side," said Helen Griffith, a London-based senior client partner in the global financial services practice at Los Angeles-based executive recruitment firm Korn/Ferry.
"It's on a very targeted, very specific basis," she cautioned. "But great performers are, as they have always been, in demand."
Write to Julie Steinberg at Julie.Steinberg@dowjones.com