A New York judge will decide if the trustee liquidating MF Global Inc. can distribute $685 million to the brokerage's former customers. Following a Thursday hearing, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan took the matter under advisement, according to a source familiar with the case.

James Giddens, the Securities Investment Protection Act trustee for MF Global, on March 15 filed a motion requesting permission to make the distribution.

Under his proposed plan, former MF Global commodities futures customers who traded on U.S. exchanges would receive $600 million. About $50 million would go to customers who traded on foreign exchanges, and $35 million would be handed to certain customers holding physical items such as gold bars, court papers said.

As of March 15, U.S. commodities customers had received about 72% of their funds. Those customers who traded on foreign exchanges had yet to receive a distribution, as Giddens had only recovered a "small portion" of those funds, court papers show.

In court papers filed March 30, though, Louis J. Freeh, Chapter 11 trustee for bankrupt MF Global Holdings Ltd., parent of MF Global Inc., raised certain concerns about Giddens' request.

Freeh said Giddens was vague about the exact distribution percentage for allowed claims. Freeh also questioned how Giddens had reached his estimate of a $1.6 billion customer account shortfall, when futures exchange CME Group Inc. has estimated the gap at less than $600 million.

In a February report, Giddens had said that MF Global had improperly used client money to cover corporate transactions, creating a major gap in customer funds.

Freeh also asserted in court papers that customers of MF Global affiliates had yet to receive any distributions and would be excluded under the plan.

"The Chapter 11 trustee generally supports the swift and streamlined distribution of customer property to the customers but believes that the SIPA trustee should make additional disclosures of the facts and assumptions relied upon by him in formulating the proposed distribution," Freeh said. "The distribution motion is devoid of sufficient information necessary to determine it if is appropriate for the SIPA trustee to make a distribution at this time."

In a Thursday statement, Giddens said that he might pursue claims against certain directors and officers of MF Global and its parent for "among other things, breach of fiduciary duties owed to both [MF Global] and its customers and violations of the segregation requirements of the Commodity Exchange Act."

He added that he is "committed to discussing and working cooperatively to the extent possible with representatives of customers, with the goal of recovering customer property for distribution in accordance with the established claims process in the [MF Global] liquidation."

MF Global Holdings, a provider of brokerage services for commodities and listed derivatives, filed for Chapter 11 with affiliate MF Global Finance USA Inc. on Oct. 31. The Securities Investor Protection Corp. initiated a liquidation of MF Global Inc., the debtor's U.S.-regulated broker-dealer subsidiary, the same day.

In November, former FBI director and former federal judge Freeh of Freeh Group International Solutions LLC was

appointed as Chapter 11 trustee to MF Global Holdings, which was formerly run by Jon S. Corzine.

Moody's Investors Service downgraded its rating on MF Global to one notch above junk status on Oct. 24 in the belief that the company would announce lower-than-expected earnings, court papers said. MF Global did, in fact, post a $191.6 million net loss in the second quarter, compared with a $94.3 million net loss for the same period last year.

The Financial Industry Regulatory Authority required MF Global to modify its capital treatment of certain repurchase transactions to maturity collateralized with European sovereign debt on Sept. 1. Finra then demanded that the company announce on Oct. 25 that it held a long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity in Belgium, Ireland, Italy, Portugal and Spain.

Several ratings agencies then downgraded MF Global's ratings to junk status, which sparked an increase in margin calls against the company, threatening its liquidity.

The Federal Reserve Bank of New York suspended MF Global from conducting new business with it when the brokerage filed for Chapter 11.