One of the delays in former PFG customers getting more money back stems from having to wait for the Forex and Metals customers lawsuit to end. You see, Forex & Metals accounts were categorized as “unsecured” accounts rather than “30.7 secured” or “(4d) segregated.” This means they were not protected by the same parts of the bankruptcy laws as futures accounts. Indeed, we’ve warned about this characteristic of forex accounts in the past.
The wrinkle in the story stems from the fact that the money that Wasendorf stole came out of the futures accounts, and specifically the (4d) segregated funds, while the unsecured accounts were left untouched. However, according to the trustee’s interpretation of the bankruptcy laws (which we agree with and support on behalf of our futures customers), the unsecured accounts are not first in line to be made whole – domestic futures customers (4d) and secured customers (30.7) are ahead of them in line.
That would mean taking the money of the forex customers (which was not segregated and as such technically became part of the PFG asset base), and paying it to futures customers – something which definitely doesn’t sit well with said forex customers, leading to them suing the estate for certain rights and access to that money.
So what’s at stake here for futures customers?
Unfortunately, this isn’t big enough to make futures customers whole if the trustee wins on their behalf. We’re essentially talking about $30,026,000 (out of $220 million missing for 4d accounts). If the forex suit wins, that money goes to the Forex customers and we move on with disbursing the rest of the available money. If the forex/metals suit loses, that money goes into the estate and gets paid, in theory, to the futures customers who are first in line. How much more of a bump in recovery does that mean? Doing some quick back of the napkin calculations, it looks like a bump of about 8% in recovery ($30mm/$372mm). Not a huge amount, but we’ll take all we can get at this point.
So where does the suit stand? Nowhere really. The trustee filed a motion to have the case dismissed, but the judge in the case denied the bulk of that request. One count was denied because the trustee didn’t even put forth a reason for its dismissal (come on Ira, you can do better than that for the hundreds of thousands you’re billing the estate). But the judge’s dismissal doesn’t mean that the FX and Metals plaintiffs are necessarily going to win their case, it’s merely the judge ruling that there’s insufficient evidence to dismiss their suit without a full hearing. So the case moves on and this fight will drag on for a while longer, further delaying more distributions for futures customers.