Lawyers, firms line up as MF Global brokerage crumbles

NEW YORK ― Just days after the collapse of MF Global, a healthcare plaintiffs’ lawyer registered the domain — a sign of the legal business the brokerage’s failure is expected to generate.

Timothy Butler of Darien, Conn., said he is hoping for a slew of new clients in the wake of the October 31 bankruptcy of the futures brokerage that was run by former New Jersey Governor Jon Corzine, and he has good reason to be optimistic.

“There’s going to be a tremendous amount of litigation spawned by this case,” said Butler, a partner at Tibbetts, Keating & Butler, which has offices in New York and Connecticut. Since registering the domain name, he said, “my email box is full and my phone is ringing off the hook.”

The financial firm’s bankruptcy is the eighth largest in U.S. history, and is already starting to generate serious work for lawyers. With $600 million still missing from customer accounts, it is not just bankruptcy lawyers who are mobilizing, but white-collar defense and securities class-action too.

Among the earliest entrants are several heavy hitters, including Dewey & LeBoeuf partner Martin Bienenstock, who on Wednesday won the contest involving at least three other top firms vying to represent the unsecured creditors committee.

The bankruptcy assignment “will be the biggest golden egg” in the litigation, said John Pottow, a professor at University of Michigan Law School and former attorney at Weil, Gotshal & Manges. Law firm Skadden, Arps, Slate, Meagher & Flom, which represented the brokerage Refco during its 2005 bankruptcy, billed about $42 million in two years on that case, Pottow said.

MF Global Holdings quickly chose Skadden partner Ken Ziman as its counsel in bankruptcy, meaning he should get a hefty chunk of Chapter 11 fees, though Pottow noted that the bankruptcy court must approve any fees paid by the MF Global estate to its attorneys and to the creditors committee.

Ziman did not respond immediately to a request for comment.

Bienenstock, at Dewey & LeBoeuf, will also take in plenty as the attorney for the unsecured creditors committee. For comparison, Milbank Tweed Hadley & McCloy, which served as counsel for the unsecured creditors committee in the Lehman Brothers bankruptcy, billed $2.5 million last July alone in that case.

But individual creditors — including those on, and not on, the creditors committee — will likely hire their own attorneys, as will the secured creditors. And if the trustee for MF Global seeks to claw back money previously paid to creditors, as is also likely, even more lawyers will climb on board.

When it is all over, legal bills related to the bankruptcy action alone could approach $120 million, according to a fee calculator developed by two law professors at the University of California Los Angeles School of Law. The LoPucki-Doherty Professional Fees Calculator estimates legal fees in bankruptcy cases based on the debtor’s total assets, liabilities, location of court, date of filing and other factors — but does not account for a rapid liquidation, for example, if MF Global is unable to obtain debtor-in-possession financing, also known as a DIP loan.

Experts have said the company may not get a DIP loan, a scenario which would increase the likelihood of a quick fire sale of the company’s assets rather than a prolonged liquidation.