Doomed brokerage MF Global has once again found itself in the news after Allied World, one of its insurers, became entangle in a coverage dispute. In particular, Allied World was attempting to reconcile a coverage dispute from New York to Bermuda. However, in doing so, the insurer was determined to have been responsible for posting a $15 million bond by US bankruptcy judge.
As per an ongoing legal battle, Allied World is on the hook for posting a $15 million bond for the amount the group would potentially owe MF Global – this centered on an errors and omissions policy that Allied World issued to the defunct brokerage nearly six years ago, according to a recent regulatory filing.
Following a bankruptcy hearing last month, authorities ordered Allied World to post an initial bond of $15 million. Since then, US Judge Martin Glenn has stricken the bond as defective at the urging of MF Global on the grounds that the insurer was attempting to evade the requirements of New York insurance law through “conditioning the bond’s availability upon the exhaustion of appeals.”
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Glenn agreed. Consequently, Allied World is obliged to post a new $15 million bond that will allow MF Global to ‘promptly recover’ any judgement against the insurer. The legal hassle is a blow for Allied World, that had unsuccessfully tried to argue against MF Global’s “theoretical” and “impractical” concerns.
MF Global had stipulated that Allied World and a consortium of other Bermuda-based excess insurers were still responsible for owing at least $25 million for policy coverage and damages of up to $40 million. None of these entities had contributed any resources to a $159 million multi-district litigation settlement to resolve claims against the company’s former managers and directors, including ex-CEO Jon Corzine.
Prior to being relegated to special administration, MF Global had been providing contracts-for-difference (CFDs), foreign exchange and spread betting services to clients. The brokerage had previously filed for bankruptcy protection after a bet made by the company on European sovereign debt paper turned sour.
Consequently, the financial condition of MF Global substantially deteriorated after the firm made client money transfers to corporate accounts in order to cover some losses, which the brokerage incurred. As the exposure of the company to the market went deeply into the red, MF Global made improper transfers totaling more than $891 million from client money funds.
As recently as March of this year, PricewaterhouseCoopers LLP settled a $3 billion negligence lawsuit over its alleged responsibility for the 2011 collapse of MF Global Holdings. MF Global’s bankruptcy administrator and PwC each noted that the settlement terms were confidential, but that the lawsuit had been resolved “to the mutual satisfaction of the parties”.