Updated at 7 p.m. ET: Former clients of MF Global expressed outrage last week over reports that Louis Freeh, the trustee overseeing the company's liquidation, planned to ask a bankruptcy judge to approve sizable bonuses for nearly two dozen top executives at the failed firm. Now they have allies on Capitol Hill who share their frustration.
Sen. Jon Tester, D-Mont., sent a letter to Freeh calling such bonuses "outrageous," and Sen. Amy Klobuchar, D-Minn., called the bonus plan "simply unacceptable" in a letter she sent to Freeh. Sen. Chuck Grassley, R-Iowa, said in a statement, "It seems like the last thing the executives should see is a six-figure bonus for trying to undo the mess they helped to create." Grassley sponsored legislation in 2005 that significantly changed U.S. bankruptcy law.
Late Monday Freeh said in a letter to Tester that he had not made any decisions on possible bonuses for MF Global executives, "notwithstanding reports to the contrary that have appeared in the media."
When MF Global capsized last October, it left behind an enormous snarl of poorly kept records and customer accounts that had been depleted by as much as $1.6 billion, some of which still has not been found. Some former MF Global clients are said to have received less than 75 cents on the dollar of their money back.
"The mere notion that senior officials of a firm that has failed to account for ... clients' losses should get a performance-based bonus is troubling," Tester wrote.
Untangling the numerous transfers made during the troubled firm's final days will be a monumental task, one Freeh's representatives have argued could be most effectively accomplished by the executives who were there at that time. The alternate option, bringing in outside consultants and accountants, would be more expensive, they said.
The bonuses have been referred to as performance bonuses rather than retention payments. Performance-based bonuses are allowed under bankruptcy law, which has led some critics to charge that performance metrics are set so low as to make the bonuses de facto retention payments.
“The trustee plan needs to get its priorities straight and focus on returning customers’ money rather than rewarding the failed company’s executives," Klobuchar said in her letter.