* Trustee can assign claims against Corzine, other insiders
* Judge raises concerns about potential proceeds allocation
By Nick Brown
NEW YORK, Sept 5 (Reuters) - A Manhattan bankruptcy judge said on Wednesday he was prepared to allow the trustee unwinding MF Global's broker-dealer to join forces with some of the company's former customers who have sued ex-Chief Executive Jon Corzine and other insiders.
U.S. Bankruptcy Judge Martin Glenn said he will make his decision official when the trustee, James Giddens, files court papers outlining the details of the cooperative effort. The filing will reflect language changes requested by Glenn, particularly over concerns about how proceeds of the class actions would be allocated among MF creditors.
Glenn ordered the plan's language updated to address objections by the defendants in the class actions, and by Louis Freeh, the trustee liquidating MF Global's parent entity.
MF Global went bankrupt in October after its exposure to European sovereign debt spooked investors. Corzine, a former chief of Goldman Sachs Group Inc and a former senator and governor of New Jersey, stepped down days later.
Commodities traders, customers of the firm's broker-dealer unit, are facing an estimated $1.6 billion shortfall in their accounts, which Giddens has said is due to MF Global's misuse of customer money in a frantic attempt to keep it afloat. Giddens us responsible for recovering as much money as possible for those customers.
Some customers have sued Corzine, Chief Financial Officer Henri Steenkamp, Chief Operating Officer Bradley Abelow and others, accusing them of mismanaging the firm and catalyzing its demise.
Giddens has similar claims against the executives for negligence and breach of fiduciary duty, but earlier this month said he would forgo bringing them himself in favor of assigning them to and cooperating with the class-action plaintiffs.
Under Giddens' plan, proceeds from the litigation would be sent to the broker-dealer's estate and distributed by Giddens to customers.
A spokesman for Giddens said he was pleased that the judge plans to let the proposal go forward.
"We think this will bring tremendous efficiencies and jumpstart the discovery and the prosecution of the claims against Corzine and others," spokesman Kent Jarrell said.
A spokesman for Corzine had no immediate comment.
THE ALLOCATION PROBLEM
Louis Freeh, the trustee liquidating MF Global's parent entity, objected, saying some of Giddens' claims against the defendants would benefit MF Global's general estate, not its customers, and should therefore be filed by Freeh.
The two trustees represent the interests of different sets of creditors, and have long battled over entitlement to various pots of money. Freeh is trying to pay back creditors of MF Global's parent, like lender JPMorgan Chase & Co.
Glenn voiced his own concerns, asking Giddens' attorneys how proceeds of the lawsuits -- particularly settlements -- would be allocated between customers and other MF creditors.
"If all of the defendants came to you and said 'We'll make all commodities customers whole, but there will be nothing for (other creditors), would that be an appropriate" settlement, Glenn asked.
Giddens agreed to tweak the plan to allow Glenn, as well as the judge in the class action, to review settlements.
Disputes over allocation have been a common theme in MF Global's liquidation. Glenn has never issued a ruling laying out rules to determine which creditor constituencies are entitled to which sources of recovery, but it has been a key point of contention between the trustees.
If parties in the class action reach a settlement that must be divvied between creditors, Judge Glenn may finally have to weigh in on the issue.
The brokerage liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.