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James B. Kobak, Jr. David W. Wiltenburg Savvas Foukas HUGHES HUBBARD & REED LLP One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 Attorneys for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re MF GLOBAL INC., Debtor. Case No. 11-2790 (MG) SIPA

STATEMENT IN FURTHER SUPPORT OF DISINTERESTEDNESS AND IN RESPONSE TO COURT ORDER DATED DECEMBER 7, 2011

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TABLE OF CONTENTS
Page I. EMPLOYMENT OF PROFESSIONALS AND HANDLING OF CONFLICTS IN SIPA CASES ...........................................................................................3 A. B. C. Retention of SIPA Trustee and Counsel ..................................................................3 The MFGI Liquidation .............................................................................................7 HHR Policies and Practices Regarding Conflicts in SIPA Proceedings ..............................................................................................................9

II.

RETENTION OF THE TRUSTEE AND HHR IS APPROPRIATE UNDER BOTH SIPA AND BANKRUPTCY CODE STANDARDS..............................11 A. B. C. D. The SIPA Disinterestedness Standard ...................................................................11 The Trustee and HHR Are Disinterested Under SIPA ..........................................12 Retention of HHR Is Also Proper Under Bankruptcy Code 327 ........................13 The Trustee And HHR Will Continue To Comply With All Applicable Disclosure Requirements .....................................................................21

III.

RESPONSES TO FACTUAL AND LEGAL QUESTIONS.............................................23

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TABLE OF AUTHORITIES
Page(s) CASES In re Allegheny Intl, Inc., 117 B.R. 171 (W.D. Pa. 1990) ............................................................20 In re AroChem Corp., 176 F.3d 610 (2d Cir. 1999) .............................................................. passim In re Blinder, Robinson & Co., 131 B.R. 872 (D. Colo. 1991) .........................................18, 21, 28 In re Crivello, 134 F.3d 831 (7th Cir. 1998)..................................................................................19 In re Diva Jewelry Design, Inc., 367 B.R. 463 (Bankr. S.D.N.Y. 2007)...................................7, 15 In re Granite Partners, L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998) ........................................18, 19 In re Huntco Inc., 288 B.R. 229 (E.D. Mo. 2002) ...............................................................7, 14, 15 In re Leslie Fay Cos., 175 B.R. 525 (Bankr. S.D.N.Y. 1994) .......................................................20 In re Madoff, 2010 WL 3260074 (S.D.N.Y. 2010)..........................................................................5 In re Perry, Adams & Lewis Sec., Inc., 5 B.R. 63 (Bankr. W.D. Mo. 1980) .................................18 In re Project Orange Assocs., LLC, 431 B.R. 363 (Bankr. S.D.N.Y. 2010) ...........................15, 16 Rome v. Braunstein, 19 F.3d 54 (1st Cir. 1994) ......................................................................17, 18 STATUTES AND RULES 11 U.S.C. 101(14) ...................................................................................................................6, 13 11 U.S.C. 327 ...................................................................................................................... passim 11 U.S.C. 521 ................................................................................................................................3 15 U.S.C. 78aaa et seq. .................................................................................................................1 15 U.S.C. 78eee .................................................................................................................. passim 15 U.S.C. 78eee(b)(6) ......................................................................................................... passim Federal Rule of Bankruptcy Procedure 1007 ...................................................................................3 Federal Rule of Bankruptcy Procedure 2014 ......................................................................... passim Model Rules of Professional Conduct R. 1.7 (2010) .................................................................9, 10

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Page(s) Joint Rules of the Appellate Divisions of the Supreme Court, Rules of Professional Conduct R. 1.7 (2009) ....................................................................................................9, 10, 15 Joint Rules of the Appellate Divisions of the Supreme Court, Rules of Professional Conduct R. 1.9 (2009) ..............................................................................................................15 OTHER AUTHORITIES RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS 128 (2000) ......................................9 H.R. Rep. No. 95-746, 95th Cong., 1st Sess. 26 (1977) .................................................................5 Securities Investor Protection Act of 1977: Hearing on H.R. 8331 Before the Subcomm. on Consumer Prot. & Fin. of the H. Comm. on Interstate & Foreign Commerce, 95th Cong. 173 (1978) (statement of Hugh F. Owens, Chairman, Sec. Investor Prot. Corp.) ....................................................................................................................................................6

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James B. Kobak, Jr. David W. Wiltenburg Savvas Foukas HUGHES HUBBARD & REED LLP One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 Attorneys for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re MF GLOBAL INC., Debtor. STATEMENT IN FURTHER SUPPORT OF DISINTERESTEDNESS AND IN RESPONSE TO COURT ORDER DATED DECEMBER 7, 2011 James W. Giddens, as Trustee (the Trustee) for the liquidation of the business of MF Global Inc. (Debtor or MFGI) pursuant to the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa et seq.,1 by his undersigned counsel Hughes Hubbard & Reed, LLP (HHR or the Firm), having made application to the Court for an order finding that they are disinterested within the meaning of SIPA (the Disinterestedness Application, ECF No. 45), respectfully submit this Statement in response to the Courts Order dated December 7, 2011 (the December 7 Order, ECF No. 660). Case No. 11-2790 (MG) SIPA

1.

For convenience, subsequent references to SIPA will omit 15 U.S.C.

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1.

The information contained herein and in the Declaration of James B.

Kobak, Jr. dated December 12, 2011 (Kobak Declaration), filed herewith, will respond to the questions set forth in the December 7 Order, and will show that JP Morgan Chase Bank, N.A. (JPM) is not a current client of HHR and that no other substantive ground exists that would prevent a finding of disinterestedness under SIPA 78eee(b)(6). 2. HHR regrets if its prior submissions have left any questions relating to

HHRs current clients insufficiently addressed. The Firm takes very seriously its ethical obligations, and this Statement reflects a substantial additional effort to identify potential client conflicts based on available information, although, as set forth below, client representations are not relevant as a legal matter to retention of the Trustee and counsel under SIPA. It is especially meaningful in this regard that SIPC, which is granted sole discretion to select Trustees counsel under SIPA 78eee as well as extensive supervisory role, does not believe there is any ground that would prevent a finding of disinterestedness in this case. 2 3. Further, certain letters to the Court in connection with the

Disinterestedness Application contain many inaccuracies and seek to create an appearance that HHR has intentionally withheld relevant information or otherwise acted improperly, which is not correct.3 The material in the following sections is accordingly submitted in order to set the record straight, to explain the particular characteristics of SIPA affecting retention of the Trustee and HHR, and to establish the appropriate legal and factual context for the Courts consideration of the Disinterestedness Application.
2. 3. See Memorandum of The Securities Investor Protection Corporation in Response to the Courts Order Directing Trustee to File Further Disclosures Regarding Disinterestedness (the SIPC Memo). See, e.g., Letter of Mitch Fine dated December 6, 2011 (the December Fine Letter) (ECF No. 653); Letter of Mitch Fine dated November 22, 2011 (the November Fine Letter) (ECF No. 414), and collectively with the December Fine Letter, the Fine Letters.

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4.

Part I of this Statement addresses the particular attributes of a SIPA

proceeding insofar as retention of professionals and the handling of conflicts is concerned. Part II addresses legal standards and authorities, as directed by the Court in the December 7 Order. Part III addresses the particular factual and legal questions set forth in the December 7 Order. I. EMPLOYMENT OF PROFESSIONALS AND HANDLING OF CONFLICTS IN SIPA CASES 5. The procedures and legal standards governing appointment of the Trustee

and the Trustees counsel in SIPA cases, while similar in some respects to practice under the Bankruptcy Code, are unique to SIPA. The special characteristics of SIPA cases are described in the following paragraphs. A. Retention of SIPA Trustee and Counsel 6. In a normal voluntary chapter 7 or 11 case, the debtor selects its counsel in

advance of the filing. The selected firm and (in major cases) other retained professionals work with the debtors management to gather information and prepare to file the required Petition and Schedules and Statement of Financial Affairs.4 Thus, by the filing date and the application for retention of counsel, debtors counsel will already know the identity of the largest secured and unsecured creditors, the parties to executory contracts, the recipients of payments within 90 days of the filing, and the identities of insiders, stockholders and other significant parties. This information becomes part of the supporting data or match list for retention applications under 327(a) of the U.S. Bankruptcy Code (Bankruptcy Code or Code) and Rule 2014 of the

4.

See 11 U.S.C. 521 (outlining the information that a Debtor must file in a bankruptcy proceeding). See also, Federal Rule of Bankruptcy Procedure 1007 (specifying what must be filed by a Debtor under 521 of the Bankruptcy Code and the time within which the documents must be filed).

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Federal Rules of Bankruptcy Procedure (Bankruptcy Rules or Rule) typically filed on the first day of the case. 7. By contrast, the typical SIPA case is an emergency, where a sudden event

compels immediate action by SIPC to protect customers. This initiates the first-day sequence of events prescribed under SIPA 78eee: SIPC makes application for a protective decree to the District Court having jurisdiction of the debtor (SIPA 78eee(a)(3)); The District Court enters the decree immediately if the debtor consents, or holds a hearing on specified issues within 3 days if it does not (SIPA 78eee(b)(1)); and SIPAs exclusive jurisdiction and automatic stay provisions come into effect immediately upon the filing (SIPA 78eee(b)(2)).

8.

If the decree is granted, the District Court is next required forthwith to

appoint the trustee and counsel, pursuant to the following provision: (3) Appointment of Trustee and Attorney If the court issues a protective decree under paragraph (1), such court shall forthwith appoint, as trustee for the liquidation of the business of the debtor and as attorney for the trustee, such persons as SIPC, in its sole discretion, specifies. The persons appointed as trustee and as attorney for the trustee may be associated with the same firm. SIPA 78eee(b)(3) (emphasis added). 9. Appointment of the trustee and counsel must be immediate and in the

sole discretion of SIPC. SIPC must select a trustee and counsel who do not have conflicts vis a vis the debtor, and that have the resources and know-how to carry out the specialized work that must be done for the protection of customers and customer property in the hours and days after the SIPA filing. SIPCs authority in this regard was fortified by the 1978 amendment to SIPA, in order to eliminate any ambiguity that SIPCs first-day choice of the trustee and counsel must

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prevail, subject only to SIPAs disinterestedness standard.5 SIPA further delegates to SIPC extensive oversight functions regarding trustees and counsel, including monitoring of compliance with a SIPA disinterestedness standard that is tailored to the goals and purposes of the statute.6 10. The Disinterestedness standard set forth in SIPA 78eee(b)(6)(A) is

adapted to the first day conditions and the role of SIPC that prevail in a SIPA case. A trustee or counsel to the trustee is not deemed disinterested if: (i) (ii) such person is a creditor (including a customer), stockholder, or partner of the debtor; such person is or was an underwriter of any of the outstanding securities of the debtor or within five years prior to the filing date was the underwriter of any securities of the debtor; such person is, or was within two years prior to the filing date, a director, partner, officer, or employee of the debtor or such an underwriter, or an attorney for the debtor or such an underwriter; or it appears that such person has, by reason of any other direct or indirect relationship to, connection with, or interest in the debtor or such an underwriter, or for any other reason, an interest materially adverse to the interests of any class of creditors (including customers) or stockholders.

(iii)

(iv)

SIPA 78eee(b)(6)(A). 11. Each of the four sub-parts of this provision looks to adverse interests vis a

vis the debtor that a professional may have in his personal capacity. In this respect, it mirrors the
5. 6. See H.R. Rep. No. 95-746, 95th Cong., 1st Sess. 26 (1977) (House Report). The Second Circuit has affirmed the constitutionality of SIPAs delegation of trustee and counsel selection authority to SIPC. See In re Madoff, 2010 WL 3260074 (S.D.N.Y. 2010) (noting that the Second Circuit has held that SIPA, as a statutory scheme allowing SIPC to appoint trustees, is constitutional) (citing S.E.C. v. Oxford Securities, Ltd., 486 F.2d 1396 (2d Cir. 1973)).

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interested person definition in Bankruptcy Code 101(14).7 In fact, SIPA 78eee(b)(6) was adapted from the interested party definition found in the Bankruptcy Act, which was in turn the predecessor of current Bankruptcy Code 101(14).8 12. The Second Circuit has strongly emphasized the personal nature of the

adverse interest contemplated by the interested person definition. See In re AroChem Corp., 176 F.3d 610, 629 (2d Cir. 1999) (holding that such disinterested person provisions implicate only the personal interests of the professional whose disinterestedness is under consideration.) 13. The Second Circuit in AroChem went on to distinguish Bankruptcy Code

327(a), which incorporates the interested person standard, but also includes the language holds or represents an interest adverse to the estate. AroChem, 176 F.3d at 629. The Second Circuit held that this use of language was not accidental and that to hold an adverse interest and to represent an adverse interest simply have different meanings. Id. Because Congress did not use the term represent in the interested party definition of, the Second Circuit held a

7.

The term disinterested person means a person that (A) is not a creditor, an equity security holder, or an insider; (B) is not and was not, within 2 years before the date of the filing of the petition, a director, officer, or employee of the debtor; and (C) does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor, or for any other reason. 11 U.S.C. 101(14).

8.

See Securities Investor Protection Act of 1977: Hearing on H.R. 8331 Before the Subcomm. on Consumer Prot. & Fin. of the H. Comm. on Interstate & Foreign Commerce, 95th Cong. 173 (1978) (statement of Hugh F. Owens, Chairman, Sec. Investor Prot. Corp.) (stating that the amendments to section (b)(6) of the 1970 version of SIPA were intended to incorporate the disinterestedness provisions of Chapter X of the Bankruptcy Act.); See also Securities Investor Protection Act of 1977: Hearing on H.R. 8331 Before the Subcomm. on Consumer Prot. & Fin. of the H. Comm. on Interstate & Foreign Commerce, 95th Cong. 173 (1978) (statement of Hugh F. Owens, Chairman, Sec. Investor Prot. Corp.) (Three objectives are accomplished by amendments to this subsection. First, because of the numerous times courts have questioned the authority of SIPC to designate the trustee and his counsel, the existing provision that such designations are within the discretion of SIPC is sharpened).

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professionals mere representation of an adverse party cannot mean that the professional is not disinterested. Id. See also In re Diva Jewelry Design, Inc., 367 B.R. 463, 470 n.29 (Bankr. S.D.N.Y. 2007) (observing that hold and represent are not the same thing); In re Huntco Inc., 288 B.R. 229, 233 (E.D. Mo. 2002) (a law firm is disinterested under 101(14)(E) unless it personally holds a materially adverse interest to the estate, creditor or equity holders). 14. It necessarily follows that the absence from SIPA of reference to

representation of an adverse interest means that a professionals representation of clients with interests adverse to the estate cannot support a finding that the professional is not deemed disinterested within the meaning of SIPA 78eee(b)(6)(A). 15. The logic of SIPAs choice of standards regarding professional disinterest

is equally compelling, given the first day conditions described above and SIPCs role in the selection and supervision of professionals. As a SIPA filing is taking place, beyond the name of the debtor itself, little is reliably known about the identities of every party that may ultimately have a financial stake or otherwise be adverse to the estate. Because the holders of potentially adverse interests are not yet known, it would illogical and counterproductive for SIPA to condition professional retention on an adverse representation factor. (See SIPC Memo.) B. The MFGI Liquidation 16. The history of the present case follows exactly the pattern established by

SIPA. On October 31, 2011, the Honorable Paul A. Engelmayer, United States District Court for the Southern District of New York, entered the Order Commencing Liquidation of MFGI (the MFGI Liquidation Order, ECF No. 1) in the case captioned Securities Investor Protection Corp. v. MF Global Inc., Case No. 11-CIV-7750 (PAE). 17. The MFGI Liquidation Order inter alia: (i) found the customers of MFGI

to be in need of the protection of the Act; (ii) appointed James W. Giddens as Trustee for the 7

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liquidation of the business of MFGI pursuant to SIPA 78eee(b)(3); (iii) appointed HHR as counsel to the Trustee pursuant to SIPA 78eee(b)(3); and (iv) removed the case to this Court pursuant to SIPA 78eee(b)(4). 18. The actions of SIPC in connection with retention of the Trustee and

counsel is set forth in the SIPC Memorandum and accompanying Affidavit. HHR also established through conflict checks that it did not represent and was not adverse to any known affiliate of MFGI.9 HHR also knew from its experience in Lehman and other SIPA liquidations that HHR was free to act with respect to securities and commodities clearing agencies and exchanges, MFGIs principal custodian banks, and other significant parties. (Kobak Decl. 12.) 19. The Liquidation Order was entered on October 31, 2011, at 5:10 p.m.

During the ensuing 8 days, over $1.5 billion in customer property was transferred to solvent brokers and futures commission merchants for the benefit of approximately 10,200 customers of MFGI. 20. On November 8, 2011, the Trustee and HHR filed the Trustees

Disinterestedness Application, with a hearing scheduled for November 22.10 This early application and hearing date were to fulfill the mandate of SIPA that there be a hearing on disinterestedness, promptly after the appointment of a Trustee. SIPA 78eee(b)(6)(B). 21. As mentioned repeatedly in the Fine Letters, the Disinterestedness

Application also made gratuitous references to Bankruptcy Rule 2014 and Bankruptcy Code 327. This was unnecessary, as these bankruptcy provisions are inapplicable by their terms in this

9.

See Kobak Decl. 12. An HHR representation of MFGI in connection with a real estate lease terminated in 2008. Id. at n.8.

10. The Disinterestedness Application was served upon all persons filing notices of appearance. Only one formal objection was filed.

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proceeding. (See also SIPA Memo.) Nevertheless, HHRs retention and disclosures fully meet the substance of these bankruptcy provisions, as set forth below. 22. During the 14 day interval between the filing of the Disinterestedness

Application and the hearing, a further $477 million in customer property was transferred to solvent brokers and FCMs for the benefit of approximately 15,100 customers. 23. A hearing was held on the Disinterestedness Application on November 22,

2011. In response to the Courts request at the hearing, HHR filed the Supplemental Declaration of James B. Kobak, Jr. Regarding Disinterestedness, dated November 29, 2011 (Supplemental Declaration) (ECF No. 509). Thereafter, Mr. Fine filed the December Fine Letter, based largely on information from the HHR website about past and present client representations. 24. The present Statement is filed in response to the December 7 Order, which

set forth certain factual and legal questions and directed the filing of supplemental disclosures and memoranda of law. This Statement is based on current knowledge, and will be supplemented as further information becomes available. C. HHR Policies and Practices Regarding Conflicts in SIPA Proceedings 25. In its many prior representations of SIPA trustees, HHR has adhered

strictly to all legal and ethical requirements surrounding the representation of clients having conflicting interests, as expressed in the Other Authorities referenced in the December 7 Order. See Joint Rules of the Appellate Divisions of the Supreme Court, Rules of Professional Conduct R. 1.7 (2009) ( Joint Rules); see also Model Rules of Profl Conduct R. 1.7 & Cmt. (2010) ( Model Rules); Restatement (Third) of the Law Governing Lawyers 128 (2000) (hereinafter Restatement). In particular, HHR will not, without the consent of the adverse party and SIPC, represent a client in actual or threatened assertion (or defense) of disputed claims as against another client, even if the matters are unrelated (see Restatement 128(2)). 9

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In appropriate cases, HHR will not handle matters involving client but work with SIPC to have conflicts counsel appointed. See Joint Rules, R. 1.7(b); Model Rules R. 1.7. 26. These rules and principles have been fully followed by HHR as the

Trustees counsel in the SIPA liquidation of Lehman Brothers Inc. (LBI), as the most recent example. As a large broker dealer, LBI (the Lehman entity subject to liquidation under SIPA) had dealings with thousands of parties, inevitably including some existing clients of HHR. In the vast majority of cases, financial professionals on both sides of the transaction could agree on the appropriate monetary outcome of a bankruptcy-related termination or similar event, and there was no dispute. It is anticipated that the same will be true of the dealings of MFGI most of the time, sophisticated parties will not disagree about sums due on the closeout of a particular repurchase transaction, forward or futures contract, foreign currency transaction, or the like. 27. However, where agreement could not be reached among the financial

professionals for the Trustee and a counterparty, creating a need for lawyers to be involved, the Trustee retained conflicts counsel or utilized non-HHR attorneys on the Trustees staff to pursue or defend claims vis a vis HHR clients. In some cases, adversary proceedings or other formal litigation was commenced by conflicts counsel, as has also occurred in the Madoff liquidation.11 In other instances, settlements were reached without the involvement of HHR attorneys, and were entered on the Bankruptcy Court docket.12 28. In other instances in the LBI liquidation, HHR has secured waivers from

some existing clients as well as SIPC and has requested advance waivers by new financial clients
11. See e.g., Lehman Bros. Inc. v. Citibank, N.A. (In re Lehman Bros. Inc.), No. 11-01681 (Bankr. S.D.N.Y. Mar. 18, 2011) (ECF No. 1); (Bankr. S.D.N.Y. June 29, 2011) (ECF No. 4370); Picard v. Melvin N. Lock Trust (In re Bernard L. Madoff Inv. Sec. LLC), No. 10-05410 (Bankr. S.D.N.Y. Dec. 10, 2010) (ECF No. 1); Picard v. Siskind (In re Bernard L. Madoff Inv. Sec. LLC), No. 10-04420 (Bankr. S.D.N.Y. Nov. 30, 2010) (ECF No. 1). 12. E.g., In re Lehman Bros. Inc., No. 08-01420 (Bankr. S.D.N.Y. December 2, 2011) (ECF No. 4767, 4257, 4757).

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with respect to potential conflicts with the LBI Estate on matters unrelated to representation of the client by HHR. This practice will be continued where appropriate to include waivers or advance waivers with respect to unrelated conflicts with the MFGI Estate. 29. In the present proceeding, the Trustee has had occasion to use staff

personnel other than HHR attorneys in dealings with Wells Fargo, an HHR client. This was done in an abundance of caution, as it is not clear that any legal dispute will arise between the MFGI estate and Wells Fargo. (See Kobak Decl. at 6 n.7.) An important feature of situations where the Trustee must retain alternative counsel is the consent of SIPC. See SIPA 78eee(b)(3). Retention of conflicts counsel is also subject to Bankruptcy Court approval.13 II. RETENTION OF THE TRUSTEE AND HHR IS APPROPRIATE UNDER BOTH SIPA AND BANKRUPTCY CODE STANDARDS A. The SIPA Disinterestedness Standard 30. The Courts December 7 Order and the Fine Letters concern HHRs

representation in unrelated matters of parties that may have an interest in the liquidation, including JPM and PricewaterhouseCoopers, LLP (PwC). As a matter of law, such representations do not make the Trustee or HHR persons not deemed disinterested under SIPA. 31. As explained in above, under SIPA, an attorneys representation of

entities does not make that attorney or law firm not disinterested. Indeed, the plain language of SIPA refers not to the person representing a materially adverse interest, but rather to it appearing that the person himself has such an interest. SIPA 78eee(b)(6)(A)(iv). In contrast, Bankruptcy Code 327(a) refers to persons who do not hold or represent an interest adverse to the estate, a test that is not part of disinterestedness under SIPA.
13. Order Authorizing the Trustee to Retain and Employ Menaker & Herrmann LLP as Special Counsel, In re Lehman Bros. Inc., No. 08-01420 (Bankr. S.D.N.Y. September 17, 2009) (ECF No. 1707).

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32.

As explained above, the Second Circuits decision in AroChem establishes

that the Codes definition of disinterestedness (like SIPAs) does not ask whether the professional represents interests materially adverse to a class of creditors, but rather asks whether the professional personally has such an interest: We believe that section 101(14)(E) is properly read to implicate only the personal interests of the professional whose disinterestedness is under consideration. See In re BH & P, 949 F.2d at 1310 & n.12. Accordingly, to run afoul of section 101(14)(E), a professional personally must have the prohibited interest. At most, [the law firm] represented interests adverse to a class of AroChem creditors when it represented [the second creditor] in his Texas Action; because [the firm] personally does not have such an adverse interest, it remains a disinterested person within the meaning of section 101(14)(E). AroChem, 176 F.3d at 629. 33. Because Congress did not use the term represent in the definition of

disinterestedness as it did in Bankruptcy Code 327(a), a professionals mere representation is insufficient to conclude that the professional is not disinterested. See id. 34. The same is true with respect to the definition of disinterestedness under

SIPA 78eee(b)(6)(A)(iv). The relevant inquiry is whether it appears the SIPA trustee or his counsel personally has an interest materially adverse to a class of creditors, not whether the professional represents such an interest. B. The Trustee and HHR Are Disinterested Under SIPA 35. Applying the appropriate standard, there is no question that the Trustee

and HHR are disinterested under SIPA 78eee(b)(6)(A) (and under the similar definition in 101(14) of the Code). 36. The Trustee or HHR personally have no interest materially adverse to the

interests of any class of creditors (including customers) or stockholders. Indeed, as set out in the

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declarations attached to the Trustees Disinterestedness Application, neither the Trustee nor HHR has any such interest. 37. Accordingly, even assuming that HHRs representation of potential

parties-in-interest in unrelated matters constituted the representation of an interest materially adverse to a class of creditors (and as outlined below it does not), under the Second Circuits decision in AroChem, such representation cannot result in the Trustee or HHR being not disinterested under SIPA. C. Retention of HHR Is Also Proper Under Bankruptcy Code 327 38. Even if the test found in 327(a) of the Code were applicable to the

retention of HHR as counsel to the Trustee, which it is not, HHRs retention would be appropriate. 39. Section 327 of the Code allows a trustee, with the Courts approval, to

employ a professional that (1) is a disinterested person under 101(14) of the Code, and (2) does not hold or represent an interest adverse to the estate. 11 U.S.C. 327(a). For the reasons outlined above with respect to the question of disinterestedness under SIPA, HHR is a disinterested person under the Code as well. The Firms employment would therefore be appropriate under 327(a) unless HHR holds or represents an interest adverse to the estate. As discussed above, there is no allegation that HHR itself holds any adverse interest; rather the Fine Letters regard HHRs representation. 40. The Second Circuit in AroChem also addressed the meaning of this

provision of the Code, stating that the language in 327(a) is phrased in the present tense. 176 F.3d at 623. Accordingly, counsel would be disqualified only if it presently represents an interest adverse to the estate; a prior representation of such an adverse interest would not be disqualifying. Id. 13

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41.

The AroChem court also observed that, while the Code does not define the

phrase hold or represent an interest adverse to the estate, many other courts defined the phrase to mean (1) to possess or assert any economic interest that would tend to lessen the value of the bankruptcy estate or that would create either an actual or potential dispute in which the estate is a rival claimant; or (2) to possess a predisposition under circumstances that render such a bias against the estate. Id. at 623 (quoting In re Roberts, 46 B.R. 815, 827 (Bankr. D. Utah 1985)). 42. Consistent with this definition, the Second Circuit observed that an

attorney is not disqualified simply by virtue of the fact that the attorney also represents a creditor. AroChem, 176 F.3d at 624. Further, 327(c) of the Bankruptcy Code states that creditor representation may be a ground for disqualification only in cases of actual conflict of interest. Thus, the concurrent representation of the creditor must implicate and create an actual conflict regarding matters involved in the bankruptcy representation. In re Huntco Inc., 288 B.R. at 236 (an attorneys representation runs afoul of 327(a) only if the issues on which it represented the interest holder [are] somehow germane to the issues involved in the bankruptcy). 43. Applying these principles here, there is no basis for a finding that HHR

currently represents any interest adverse to the estate. With respect to JPM, as set forth in the Kobak Declaration, HHR has terminated its one insignificant active representation. Because terminated representations do not implicate 327(a), HHRs prior work for JPM is of no consequence. Indeed, in the LBI liquidation, HHR has in fact successfully pressed the Trustees claims against JPM, and is currently adverse to JPM in unrelated litigation where HHR represents the Federal Deposit Insurance Corporation (FDIC).

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44.

But even if the past representations were relevant, and even assuming that

JPM itself were adverse to the estate as a result of its status as a potential creditor or its preFiling Date conduct, the matters for which HHR provided services to JPM were entirely unrelated to the debtor or the estate and they would accordingly not constitute representations of interests adverse to the estate. See AroChem, 176 F.3d at 624; Huntco, 288 B.R. at 236. 45. Similarly, with respect to PwC and other HHR clients, even assuming that

the entities posture in the liquidation were in fact adverse to the estate, the representations at issue are entirely unrelated to the debtor or the liquidation and therefore HHR is not representing interests adverse to the estate. Id. Accordingly, HHRs retention would be proper even under 327(a) of the Code.14 46. Moreover, as discussed above, with the consent of SIPC, the Trustee will

employ conflicts counsel to pursue any claims that the estate may possess against any clients of HHR, as HHR will not file suit against current clients (absent appropriate waivers) consistent with its ethical obligations. See Joint Rules, R. 1.7. 47. The employment of conflicts counsel in this manner is typical in complex

bankruptcy proceedings, including SIPA liquidations. See, e.g., AroChem, 176 F.3d at 626 (estate can secure separate counsel prosecute claims); Diva Jewelry, 367 B.R. at 474 (even assuming the existence of estate claims against attorneys former clients, the trustee can secure independent counsel to prosecute them); see also In re Project Orange Assocs., LLC, 431 B.R. 363, 375 (Bankr. S.D.N.Y. 2010) (In many cases, the employment of conflicts counsel to handle issues where general bankruptcy counsel has an adverse interest solves most questions

14. See New York Rules of Professional Conduct R. 1.9 (stating that a lawyer who has formerly represented a client shall not reveal confidential information of the former client).

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regarding the retention of general bankruptcy counsel). Indeed, the Trustee has utilized conflicts counsel in pursuing claims in the LBI liquidation against HHR clients. 48. Thus, this is not a case such as Project Orange, in which the Court

concluded that the use of conflicts counsel to deal with a Chapter 11 debtors largest unsecured creditor and essential supplier was not sufficient to permit the appointment of counsel for the debtor that had significant ties to the creditor. 431 B.R. at 365-366. In that case, the debtor operated a power facility that had two turbines manufactured and maintained by GE, and the debtor and GE had significant disagreements over the maintenance of the turbines, leading to a multi-million dollar arbitration victory by GE against the debtor. Id. at 367. The proposed debtors counsel, DLA Piper, represented GE in multiple matters, but stated that conflicts counsel could deal with GE. Id. at 369. 49. The Court concluded that in this situation, conflicts counsel would not be

appropriate to warrant retention of DLA Piper because the relationship and interaction with GE was central to the debtors reorganization. Id. at 375. GE was the largest unsecured creditor and also was responsible for the return of the turbines which were critical to the debtors ability to reorganize. Id. at 375-76. GE and the debtor were still directly adverse in litigation regarding the turbines and GE was also an active participant in the bankruptcy, making multiple filings including a motion to lift the stay to confirm its arbitration award. Id. at 376. Accordingly, since DLA Piper was conflicted from participating in significant matters that were central to the debtors ability to reorganize, its employment was not proper under Bankruptcy Code 327(a). Id. at 379. 50. By contrast, in this SIPA liquidation, there is no reorganization plan and

there is no concurrent and highly adverse HHR client central to any such process. Whatever

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involvement HHR clients may have in the later stages of the liquidation, this has not prevented and will not prevent the Trustee and HHR from performing their central roles under SIPA. Any ancillary or other proceedings involving current HHR clients can and will be handled by conflicts counsel, as is not unusual in SIPA liquidations. As noted in the Kobak Declaration, it was determined by HHR at the outset that it had no impediment to acting in any way that might be necessary to with respect to securities and commodities clearing agencies and exchanges, principal custodian banks, and others that it knew from experience would likely be key players in a SIPA proceeding. 51. Many of the other cases identified in the Courts December 7 Order

similarly involve the type of representations that raised significant questions as to whether the attorneys were capable of performing their central functions and acting in the estates best interests on matters central to the relevant proceedings. 52. For example, Rome v. Braunstein, 19 F.3d 54 (1st Cir. 1994), involved the

denial of fees to an attorney who had several disqualifying conflicts of interest. In Rome, the attorney was the longtime corporate clerk and counsel to the debtor and filed a Chapter 11 proceeding on its behalf. Id. at 56. As counsel to the debtor, the attorney filed three reorganization plans, all of which were rejected on the grounds that they favored the debtors main insider (who was accused of looting the debtor) and his family. Id. at 57. The attorney also concurrently served as counsel to the principal insider with respect to a Chapter 7 proceeding initiated against the insider, and as counsel to an acquaintance of the insider in the purchase of assets belonging to the Chapter 11 estate. Id. Affirming the denial of attorneys fees in this egregious case, the First Circuit found a clear conflict of interest in the attorneys simultaneous

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representation of many actually adverse parties. Id. at 60-62. Nothing similar has or will occur in this case. 53. Similarly, in In re Perry, Adams & Lewis Sec., Inc., 5 B.R. 63 (Bankr.

W.D. Mo. 1980), counsel for the SIPA trustee was disqualified as not disinterested where the firm was general counsel to a bank that was adverse to the debtor, one of the firms partners was the chairman of the banks board, and the lead lawyer for the trustee was also currently representing the bank in two pending proceedings. 5 B.R. at 64. No showing can be made here of any such relationship between HHR and any materially adverse party. 54. In In re Blinder, Robinson & Co., 131 B.R. 872 (D. Colo. 1991), the

district court considered an appeal from the denial of an objection to the retention of a SIPA trustee and his counsel. The firm selected by the trustee represented a potential creditor in litigation against the debtor at the time that the trustee and the firm were appointed by SIPC. Id. at 876. The firm had not withdrawn from the representation of the creditor against the debtor at the time of the appointment. Accordingly, the district court concluded that there is a legitimate argument that the representation rendered the trustee and the firm not disinterested under SIPA. Id. at 879. Nothing similar has or will occur in this case. 55. In re Granite Partners, L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998) was a

non-SIPA case in which the court partially disallowed the final fee application of counsel to a Chapter 11 trustee as a result of undisclosed conflicts of interests arising out of the law firms concurrent representation of a significant potential target of claims by the estate. The estate had potential claims against broker-dealers with whom the debtor interacted, including Merrill Lynch, and the debtors auditor, Price Waterhouse. Id. at 27. The trustee approached Willkie Farr & Gallagher to investigate and prosecute any claims, and that firm indicated that, while it

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would not be able to sue Price Waterhouse, it would be able to obtain waivers from its brokerdealer clients, including Merrill Lynch, in order to investigate and prosecute any claims against them. Id. at 27-28. 56. However, Willkie Farrs work for Merrill Lynch grew substantially from

the time of its retention by the trustee, from three open matters to hundreds of active matters. Id. at 28-29. Further, Merrill Lynch refused to provide a signed waiver. Id. at 30. Willkie Farr did not disclose these facts to the court or even to the trustee, and after years of work, ultimately declared it was unable to prosecute claims against the broker-dealers. Id. at 30-31. Based on these facts, the court concluded that Willkie Farr represented adverse interests, and had a meaningful interest, or the perception of one, to act contrary to the interests of the estates. Id. at 36. Nothing similar has or will occur in this case. 57. In In re Crivello, 134 F.3d 831 (7th Cir. 1998), the Seventh Circuit

addressed a non-SIPA case involving a law firm employed as counsel to a Chapter 11 debtor. Subsequent to the law firms appointment, it was discovered that the firm had significant, undisclosed prepetition dealings with the debtor and related parties and those dealings continued during the bankruptcy proceeding. Id. at 833-35. The firm conceded that it was not disinterested and the bankruptcy court withdrew its approval of the firms employment and denied its fee application, finding a willful failure to disclose the facts of its representation. Id. at 835. The district court found that the factual findings of willfulness were not supported by the record but upheld the denial of the fee application. Id. The Seventh Circuit concluded that the court instead has discretion in denying fees, and remanded to the bankruptcy court for a reevaluation of the issue in light of the finding that there was no willful failure to disclose. Id. at 841. Nothing

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similar has or will occur in this case, where HRRs only prior representation of the debtor (relating to the real estate lease) was terminated three years before HHRs appointment. 58. In re Leslie Fay Cos., 175 B.R. 525 (Bankr. S.D.N.Y. 1994), is similarly

inapposite. There, the court concluded that counsel to Chapter 11 debtors failed to disclose numerous significant relationships: (i) it had professional relationships with members of the debtors audit committee who were potential targets, (ii) it represented and would not sue an underwriter of the debtors securities, and (iii) it also represented a significant stockholder, the debtors auditor and a large creditor. Id. at 529-30. The court concluded that the firm represented many interests materially adverse to debtors, and failed to meet its disclosure obligations under Rule 2014(a). Id. at 533-37. Here HHR had no relationship with insiders of the debtor and will continue to disclose information about any representations of other potential parties in interest. 59. In re Allegheny Intl, Inc., 117 B.R. 171 (W.D. Pa. 1990), did not concern

retention of counsel but of a special advisor to a Chapter 11 estate. A significant potential investor in the estate had made this employment a condition of its funding of the reorganization plan and contemplated including the advisor in the management of a reorganized entity. Id. at 179. The court concluded that the advisor was not improperly employed because the possibility that [the advisor] may eventually play a managerial role in an as-yet speculative reorganization plan does not mean that [he] would fall prey to conflicting loyalties while employed under the special advisor agreement, or that his interest would be materially adverse to those of the estate, creditors or equity security holders. Id.

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60.

The existence of interactions between the debtor and clients of the counsel

to the Trustee in this case are not in any way unusual nor are they a basis for a conclusion that counsel is not disinterested, a conclusion in which SIPC concurs. 61. Indeed, even in Blinder, Robinson, where a SIPA trustees counsel had

actually represented a creditor in litigation against the debtor that was active at the time of counsels appointment, the court did not remove the trustees counsel. 131 B.R. at 881. Recognizing the complexity of large firm practice and the substantial likelihood that conflicts will arise in any complex liquidation or bankruptcy proceeding, the court accepted the firms withdrawal from the adverse representation of the creditor and accepted the appointment of special counsel to evaluate any claim against the creditor. Id. at 880. Further, the court observed that replacement of the trustee and counsel would be a major disruption to the litigation and therefore did not order their replacement. Id. at 881. 62. Here, where there is no conflict approaching the level seen in Blinder,

Robinson, and where the Trustee and his counsel have already accomplished much and built the foundation for a successful SIPA liquidation, there is no basis to conclude that HHR is incapable of meeting fulfilling the role of Trustees counsel in this case. Again, the concurrence of SIPC on this carries particular weight. D. The Trustee And HHR Will Continue To Comply With All Applicable Disclosure Requirements 63. The objection filed by Mr. Fine asserts that the Trustee and HHR failed to

comply with their disclosure obligations and should be sanctioned because they did not file a proper [Rule] 2104(a) disclosure. (December 6 Letter at 12.) 64. Rule 2014 of the Federal Rules of Bankruptcy Procedure, although

referenced by HHR in the Disinterestedness Application, is in fact inapplicable by its terms to 21

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this proceeding. Bankruptcy Rule 2014 applies only to applications for employment of professionals pursuant to 327, 1103, or 1114 of the Code, and to such applications made by the trustee or committee. F.R.B.P. 2014. Here, the Trustee and HHR were appointed under SIPA 78eee(b)(3) on the application of SIPC. They were not retained on the application of the trustee or the committee, nor were they retained under the sections of the bankruptcy Code referenced in Rule 2014. 15 65. The Trustee and HHR recognize and take seriously their obligation to

provide the Court information sufficient to determine the question of disinterestedness under SIPA 78eee(b)(6). To that end, the Trustee and HHR have expended significant effort in response to the December 7 Order to provide the expanded disclosures contained herein and in the Kobak Declaration. 66. The expanded disclosures provide a level of detail that exceeds what is

normally provided by the SIPA trustees and counsels in recent liquidations.16 HHR will continue to update disclosures an additional information becomes available.17

15. That Rule 2014 is inapplicable to any application regarding disinterestedness for a SIPA trustee and counsel is further demonstrated by other clear differences between that rule and the relevant SIPA provision. Indeed, Rule 2014(a) mandates that the application for an order approving an appointment of professionals be filed and transmitted to the United States Trustee. Of course, the United States Trustee has no role in a SIPA liquidation, and therefore notice of the disinterestedness hearing under SIPA is instead given to SIPC and to all potential customers, creditors, or stockholders of the debtor. See SIPA 78eee(b)(6)(B). 16. Declaration of David J. Sheehan of Disinterestedness of Counsel to Trustee, SIPC v. Bernard L. Madoff Investment Secs. Inc., Case No. 08-1789 (BURL) (Bankr. S.D.N.Y.) (ECF No. 24) (Jan. 2, 2009); Declaration of James B. Kobak, Jr. re: Disinterestedness of Counsel, SIPC v. Lehman Brothers Inc., Case No. 08-1420 (JMP) (SIPA) (Bankr. S.D.N.Y.) (ECF No. 54) (Oct. 3, 2008); Declaration of Rosanne Thomas Matzat, Esq. re: Disinterestedness of Hahn & Hessen LLP as Counsel to the Trustee, In re Great Eastern Secs., Inc., Case No. 08-1400 (REG) (SIPA) (Bankr. S.D.N.Y.) (ECF No. 7) (Dec. 5, 2008); Declaration of Rosanne Thomas Matzat, Esq. re: Disinterestedness of Hahn & Hessen LLP as Counsel to the Trustee, In re Weatherly Secs. Corp., Case No. 03-8155 (JMP) SIPA (Bankr. S.D.N.Y.) (ECF No. 11) (June 26, 2003). 17. In fact, in the LBI liquidation, in addition to the initial application filed within two weeks of LBIs liquidation, HHR has filed five supplemental declarations regarding disinterestedness providing additional disclosure about the firms relationships with parties-in-interest in that proceeding. See, e.g., Fifth Supplemental Declaration of (Footnote continued on next page)

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III.

RESPONSES TO FACTUAL AND LEGAL QUESTIONS 67. The Factual and Legal Questions set forth in the December 7 Order are

addressed in the following paragraphs, which also make reference where relevant to assertions contained in the Fine Letters regarding information on the HHR website. Factual Question 1: JPM 68. JPM is no longer a current client of HHR in any sense. Details regarding Are JPM, PwC, or any lenders involved in MFGIs $300 million secured credit facility current clients of HHR?

past representation of JPM, which had no relationship to MFGI, are set forth in the Declaration of James B. Kobak, Jr., submitted herewith. PwC 69. PwC is a current client and auditor of HHR, and information regarding

current and past representations is included in the Supplemental Declaration of James B. Kobak, Jr. Regarding Disinterestedness.18 HHRs historical and current relationships with PwC are such that HHR will not be adverse to PwC, either in assertion or defense of claims. 70. Two of the ten secured credit facility lenders are or may become current

clients of HHR. Information regarding representations during 2010 and 2011 is shown in spreadsheet form as Exhibit A hereto.

(Footnote continued from prior page) James B. Kobak, Jr. on Behalf of Hughes Hubbard & Reed LLP Regarding Disinterestedness of Counsel, No. 08-1420 (JMP) (SIPA) (Feb. 28, 2011)(ECF No. 4121). There is nothing unusual or improper in ongoing disclosures of this nature as counsel is able to obtain additional information about the estate and its relationships. 18. The Supplemental Declaration sets forth the modest percentages of HHR revenue represented by PwC-related fees in recent years, and the fact that most such fees relate to non-US member firms of the PwC network. (See Supplemental Decl. at 4.) As further detail relating specifically to the U.S. PwC firm, which we understand was the auditor of MFGI HHR fees in both 2010 and 2011 are less than $1 million.

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Factual Question 2: 71.

Are any other current clients of HHR creditors of MFGI? Research by the Trustees professionals has not identified any other

current clients of HHR that are creditors of MFGI. As the Court is aware, there is no petition in this proceeding showing the largest creditors of MFGI. Accordingly, HHR made an emergency request to the Trustees professionals to aid in responding to the December 7 Order, requesting identification of the 20 largest non-subordinated creditors of MFGI.19 The list produced on this expedited basis, which is preliminary and subject to revision, did not show any other current HHR clients as creditors.20 Factual Question 3: If the answers to Questions 1 or 2 are affirmative, provide details of each current matter, including the name of the client, a description of the matter and the nature of the services being provided by HHR, the date when HHR was retained, an estimate of when the matter will be concluded the amount of fees billed and/or collected to date, and if possible, an estimate of future fees before the matter is concluded. Detail regarding current clients, matters, and fees is shown in Exhibit A

72.

with respect to Factual Question 1. However, HHR respectfully submits that including the requested level of detail as to current individual client matters in this Statement, and thereby placing it on the public record, would risk disclosure of confidential information. Accordingly, if the Court deems further detailed information regarding individual client matters to be essential, HHR will request that a procedure be put in place for examination of such information in camera. Factual Question 4: Are JPM or PWC creditors of MFGI? If so please provide details.

19. Both of the known subordinated creditors are not clients of HHR. 20. Although information relating to potential customers is not requested in the December 7 Order, over 70,000 entities have received the statutory notice of the proceeding to potential customers under SIPA, and the formal claims process will soon begin. To the extent that disputes with HHR clients are identified in this process, the Trustee and HHR, in consultation with SIPC, will take such steps as are necessary to avoid conflict issues..

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73.

It is not yet known whether JPM or PwC are creditors of MFGI. Based on

current information, it is believed that the lenders under the $300 million secured credit facility referenced in Factual Question 1 were fully secured, and that MFGIs obligations under that facility were fully satisfied. Other potential MFGI obligations to JPM are not known at this time. It is clear, however, that certain of its actions are likely to be the subject of investigation and the Trustee is free to act with the respect to them.21 Whether MFGI owed fees for services to PwC as of the Filing Date is not known. Factual Question 5: Can HHR commence legal action against JPM, PWC, or any other current clients that are creditors of MFGI, if necessary and appropriate? HHR may threaten or bring an action against JPM in the context of a

74.

potential dispute between financial institutions, including MFGI, as occurred in the LBI proceeding, because it is a former client (with respect to unrelated matters) and is not a current client of the Firm.22 Absent an appropriate waiver, any legal action against PwC that may arise in the MFGI liquidation, should there in fact be any, would be handled by conflicts counsel after consultation with SIPC. Factual Question 6: Does HHR have an engagement letter with JPM, PwC or any other current clients that are creditors of MFGI, that addresses whether HHR may be adverse to those clients in other unrelated matters? No, with respect to known creditors. HHR may have or obtain such letters

75.

with clients not currently known to be creditors of MFGI.

21. Although Mr. Fine theorizes about the motivations and actions of JPM (November Fine Letter at 2-5), the significant point for present purposes is that there is no impediment to HHRs dealing with any potential claims involving JPM. 22. Certain JPM financial transactions as reported in the press will be the subject of further investigation and potential adversity, and HHR will not be restricted in connection with these activities.

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Factual Question 7:

Based on information currently available to HHR, during the ninety days prior to the commencement of the SIPA Liquidation, did MFGI make any payments or transfers of property or funds belonging to MFGI or to any of MFGIs customers, to or for the benefit of JPM, or to any other current clients of HHR? Based on information currently available to HHR, if there were such payments or transfers, do you believe that the trustee or any of MFGIs customers have a basis in fact and law to seek to recover any payments or transfers that were made to or for the benefit of JPM or other current clients of HHR? If necessary and appropriate to commence legal action to recover any payments or transfers, can HHR do so with respect to each recipient of such payment or transfer? In response to Questions 7-9, HHR has not yet conducted any preference

Factual Question 8:

Factual Question 9:

76.

analysis, either legal or factual. For purposes of responding to the December 7 Order, HHR made an emergency request to the Trustees professionals and obtained a preliminary list of payments within the ninety days prior to commencement of the SIPA liquidation. This list (which may not be complete) shows a total of approximately $62 million in payments during the period. Inevitably, HHR clients (or affiliates) are among the recipients, with an estimated total of less than $2 million.23 Accordingly, given the scale of the MFGI liquidation, the potential dollar value of preference recoveries suggested by these preliminary numbers will not be a material amount. 77. It is also respectfully submitted that it would be unfair to any particular

recipient to identify payments in this Statement, thereby placing on the public record information that might be misinterpreted to suggest potential preference exposure, when (as mentioned above) no preference analysis has occurred. Accordingly, if the Court deems individual recipient

23. This estimate is based on a list of entities that have been HHR clients within the last two years, and will tend to overstate to the extent that some such entities are no longer current clients.

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information to be essential at this time, HHR will request that a procedure be put in place for examination of such information in camera. In any event, HHR will not commence preference litigation against any current client.24 78. However, it should be noted that, to the extent that JPM was a transfer

recipient, whether during the preference period or at any other time, HHR is not restricted from dealing appropriately with any such transfer. Furthermore, as stated in the Kobak Declaration, HHR determined that it had no conflicts and is free to be adverse with the entities and parties in addition to JPM most likely to be major focuses of attention and investigation in the MFGI liquidation. Factual Question 10: What, if any, policy or practice has SIPC followed with respect to selecting conflicts counsel to handle any matters that a trustees counsel may not handle in a SIPA liquidation because of a conflict of interest? Factual Question 11: What, if any, policy or practice has SIPC followed with respect to addressing issues customarily addressed by a SIPA trustee if the trust has a conflict of interest in a particular matter? 79. In response to factual Questions 10 and 11, HHR understands that SIPC

will address these questions in the SIPC Memorandum. As mentioned above, use of conflicts counsel is available in SIPA liquidations. Legal Question 1: 80. Can HHR threaten or bring an action on behalf of the Trustee against JPM or any other current client of HHR? HHR may threaten or bring an action against JPM in the context of a

potential dispute between financial institutions, including MFGI, as occurred in the LBI proceeding. HHR will not threaten or commence actions against current clients absent waivers,
24. As stated in the Disinterestedness Application and at the November 22 Hearing, there is one potential preference situation in the LBI proceeding involving a $379,000 payment to MFGI where both LBI and LBHI have an interest in any recovery. This matter has been pursued by Weil Gotshal as counsel to LBHI. Further pursuit of this issue is now stayed as a result of the MFGI proceeding.

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consultation with SIPC, and appropriate disclosures. As noted above, HHR is free to be adverse to most of the significant parties in this liquidation. Legal Question 2: Can conflicts counsel be used in a SIPA liquidation proceeding if a trustees counsel is precluded by ethical rules from undertaking a conflicting representation? Yes. If HHR is not disinterested in a particular matter is this SIPA Liquidation, is the Trustee who is a partner in HHR likewise not disinterested? No. Practice in SIPA liquidations has been for trustees to retain conflicts

81. Legal Question 3:

82.

counsel where the Trustees counsel has a conflict.25 This is consistent with SIPA 78eee(b)(3), which provides that the trustee and counsel may be associated with the same firm. This provision would be counter-productive if a conflict of a SIPA trustees counsel (a not uncommon occurrence) would automatically entail disqualification of the trustee, who is acting in a fiduciary rather than legal capacity in the liquidation. Non-disqualification of SIPA trustees in such circumstances is also consistent with the idea that a trustee or executor acting in a fiduciary capacity is not tainted by representation of adverse interests by his law firm, absent actual conflict. E.g., Blinder, Robinson, 131 B.R. at 881. (See also SIPC Memo.) Legal Question 4: If the Trustee is not disinterested with respect to a particular matter within this SIPA Liquidation, may SIPC act instead of the Trustee in that matter? See 15 U.S.C. 78eee(b)(6)(A) (stating that except that SIPC shall in all cases be deemed disinterested, and an employee of SIPC shall be deemed disinterested if such employee would, except for his association with SIPC, meet the standards set forth in this subparagraph).

25. See e.g., Lehman Bros. Inc. v. Citibank, N.A. (In re Lehman Bros. Inc.), No. 11-01681 (Bankr. S.D.N.Y. Mar. 18, 2011) (ECF No. 1); In re Lehman Bros. Inc., No. 08-01420 (Bankr. S.D.N.Y. June 29, 2011) (ECF No. 4370); Picard v. Melvin N. Lock Trust (In re Bernard L. Madoff Inv. Sec. LLC), No. 10-05410 (Bankr. S.D.N.Y. Dec. 10, 2010) (ECF No. 1); Picard v. Siskind (In re Bernard L. Madoff Inv. Sec. LLC), No. 10-04420 (Bankr. S.D.N.Y. Nov. 30, 2010) (ECF No. 1).

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83. Memorandum. Legal Question 5:

HHR understands that SIPC will address this question in the SIPC

Please address at least the following cases and other authorities in any further memorandum of law filed in response to this Order:

Cases In re AroChem Corp., 176 F.3d 610 (2d Cir. 1999) In re Crivello, 134 F.3d 831 (7th Cir. 1998) Rome v. Braunstein, 19 F.3d 54 (1st Cir. 1994) In re Blinder, Robinson & Co., 131 B.R. 872 (D. Colo. 1991) In re Allegheny Intl, Inc., 117 B.R. 171 (W.D. Pa. 1990) In re Project Orange Assocs., LLC, 431 B.R. 363 (Bankr. S.D.N.Y. 2010) In re Granite Partners, L.P., 219 B.R. 22 (Bankr. S.D.N.Y. 1998) In re Leslie Fay Cos., 175 B.R. 525 (Bankr. S.D.N.Y. 1994) In re Perry, Adams & Lewis Sec., Inc., 5 B.R. 63 (Bankr. W.D. Mo. 1980) Other Authorities RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS 128 (2000) (stating that a lawyer may not represent one client to assert or defend a claim against or brought by another client currently represented by the lawyer, even if the matters are not related) MODEL RULES OF PROFL, CONDUCT R. 1.7 & cmt. (2010) (discussing rule and general principles of conflicts of interest regarding current clients) JOINT RULES OF THE APPELLATE DIVISIONS OF THE SUPREME COURT, RULES OF PROFESSIONAL CONDUCT R. 1.7 (2009) (stating New York rule on Conflict of Interest: Current Client) 84. These cases and authorities, as well as other relevant authorities, are

addressed as indicated in the Table of Authorities. Conclusion For the foregoing reasons, it is respectfully submitted that the Trustees Application For Entry Of An Order Regarding Disinterestedness Of The Trustee And Counsel To The Trustee should be granted in all respects.

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Dated: New York, New York December 12, 2011 Respectfully submitted, HUGHES HUBBARD REED LLP By: s/ James B. Kobak, Jr. James B. Kobak, Jr. David W. Wiltenburg Savvas Foukas One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 Email: Kobak@hugheshubbard.com Attorneys for James W. Giddens, Trustee for the SIPA Liquidation of MF Global Inc.

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EXHIBIT A

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