MF Global Bonus Plan Should Go, Senate Panel Says

A Senate committee probing the collapse of MF Global Holdings Ltd. sent a letter asking the trustee overseeing the failed financial firm to abandon a plan to pay bonuses to former top executives.

Members of the Senate Agriculture Committee told the trustee, former Federal of Bureau Investigation director Louis Freeh, in the letter that it would be "outrageous" to proceed with a proposal to a bankruptcy judge that could result in payouts of hundreds of thousands of dollars each for MF Global's chief operating officer, finance chief and general counsel. All three were at MF Global when it tumbled into bankruptcy protection and an estimated $1.6 billion went missing from customer accounts.

The letter was signed by nearly all Democrats and Republicans on the committee, except Sen. Mitch McConnell (R., Ky.). A spokesman for McConnell, the Senate's top Republican, had no immediate comment. A copy of the letter was reviewed by The Wall Street Journal.

A spokeswoman for Freeh referred to a letter he sent March 12 to another senator in which Freeh said he hadn't made any decisions on the bonuses or their amounts, and hadn't yet filed court papers requesting them.

The bankruptcy court and a Justice Department representative monitoring MF Global's case, among others, will have an opportunity to weigh in on any bonuses proposal when it is made, and the court would ultimately have to approve it, he added.

The backlash comes after The Wall Street Journal reported last week that Freeh to ask the bankruptcy judge in charge of MF Global's case to approved potential bonuses for Bradley I. Abelow, Henri J. Steenkamp and Laurie R Feber. They were lieutenants of former Chairman and Chief Executive Jon S. Corzine, the former Goldman Sachs Group Inc. chairman and New Jersey governor whose bets on bonds of troubled European countries led to a run on MF Global last fall. He resigned in November shortly after MF Global sought bankruptcy protection.

The payouts would likely be tied to achieving certain performance goals that helped Freeh untangle MF Global's books and increase recoveries for creditors. The payments would likely be made in pieces throughout 2012, and as many as 20 or so other MF Global employees now working for Free would also be eligible for the bonuses.

A lawyer for Freeh has said the bonuses would be a "cost-effective" way to maximize value for creditors because he would otherwise need to spend more money hiring other accountants and consultants to wade through MF Global's frayed finances.

The senators suggested Freeh should focus on returning funds to customers rather than creditors.

"Most egregiously, the proposed bonuses could not only reduce the amount of money available to repay MF Global customers, but the bonuses would be based on how much these executives have been able to recover for the firm's creditors, not the firm's customers," the senators said in the letter. "The executives who would receive these bonuses should be held accountable for the failure of their company, not rewarded for diverting even more money away from customers."

The committee's members include Sen. Charles Grassley, an Iowa Republican who introduced broad bankruptcy-overhaul legislation that became law in 2005. Grassley has separately raised concerns that companies might be skirting federal law when paying bonuses during bankruptcy cases. He and two other senators prodded Freeh to drop his bonus proposal on Friday.

Write to Mike Spector at mike.spector@wsj.com and Aaron Lucchetti at aaron.lucchetti@wsj.com