The judge overseeing MF Global Holdings Ltd's bankruptcy rejected requests by some former customers to convert the case to a Chapter 7 liquidation or conduct their own probe into the futures and commodities brokerage's sudden collapse.

U.S. Bankruptcy Judge Martin Glenn in Manhattan cited the potential cost to creditors and disruption of several federal investigations in setting aside the request by three commodity customers led by Sapere Wealth Management LLC.

MF Global filed for protection from creditors on Oct. 31 amid a liquidity shortfall, as investors and trading clients worried about then-Chief Executive Jon Corzine's $6.3 billion bet on European sovereign debt.

Investigators are trying to track down a sum of missing customer money that has been estimated as high as $1.2 billion.

Corzine, who had previously served as a governor and senator from New Jersey, testified before the U.S. Congress in December that he did not know where the missing money is.

The three former customers, which claimed to have had $241 million in their commodity accounts, had sought to liquidate the parent under a bankruptcy law concerning commodities brokers. This could have allowed commodity customers such as themselves to be repaid first.

Glenn, however, said the parent could not be classified as a "commodity broker" deserving of liquidation, and that converting the case would hurt creditors by raising administrative costs.

The judge also said that letting private parties probe MF Global's collapse would hinder investigations by the FBI, Justice Department, Securities and Exchange Commission, Commodity Futures Trading Commission, and the trustees for the parent company and its MF Global Inc brokerage unit.

"There may well be a time when private-party discovery is appropriate," Glenn wrote. "Now is clearly not that time."

John Witmeyer, a lawyer representing Sapere, said the Matthews, North Carolina-based firm is disappointed with the decision.

"The U.S. bankruptcy system has before never dealt with a case like MF Global," he said. "We think that it will not be the last decision on the rights of commodities customers, compared to the claims of the financial institutions that facilitated Corzine's gambling."

Separately, the trustee liquidating the MF Global Inc brokerage, James Giddens, has begun reviewing thousands of customer claims submitted before a Jan. 31 deadline.

A spokesman, Kent Jarrell, said Giddens hopes to have preliminary tallies on the number of claims by Thursday, and the amount of claims next week.

Former customers will learn whether their claims are valid on a rolling basis, but it is unclear when additional distributions will be made, Jarrell said.

Giddens has paid out roughly $3.8 billion, an estimated 72 percent of the amount held in customer accounts.

The cases are In re: MF Global Holdings Ltd et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15059; and In re: MF Global Inc in the same court, No. 11-02790.

Also see MF Global's missing money traced.

Source: Reuters