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Commitments and Contingencies
9 Months Ended
Jun. 30, 2011
Commitments and Contingencies [Abstract]  
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies
Legal Proceedings
Securities Litigation
FCStone and certain officers of FCStone were named as defendants in an action filed in the United States District Court for the Western District of Missouri on July 15, 2008. A consolidated amended complaint ("CAC") was subsequently filed on September 25, 2009. As alleged in the CAC, the action purports to be brought as a class action on behalf of purchasers of FCStone common stock between November 15, 2007 and February 24, 2009. The CAC seeks to hold defendants liable under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and concerns disclosures included in FCStone's fiscal year 2008 public filings. Specifically, the CAC relates to FCStone's public disclosures regarding an interest rate hedge, a bad debt expense arising from unprecedented events in the cotton trading market, and certain disclosures beginning on November 3, 2008 related to losses it expected to incur arising primarily from a customer energy trading account. FCStone and the named officers moved to dismiss the action. Although the Court denied that motion on November 16, 2010, it limited the action to the public disclosures made on November 3 and 4, 2008 related to the energy trading account. As a result of the Court's order and lead plaintiffs' decision not to amend their complaint, the lead plaintiffs lost standing to prosecute the action because they were not shareholders at the relevant time. Counsel for lead plaintiffs have since added named plaintiffs who purport to possess standing. Currently pending before the Court is Defendants' motion as to whether the Private Securities Litigation Reform Act of 1995 requires supplemental notice in order for the action to proceed. The Company and the FCStone defendants continue to believe the action is meritless, and intend to defend the action vigorously.
In August 2008, a shareholder derivative action was filed against FCStone and certain directors of FCStone in the Circuit Court of Platte County, Missouri, alleging breaches of fiduciary duties, waste of corporate assets and unjust enrichment. An amended complaint was subsequently filed in May 2009 to add claims based upon the losses sustained by FCStone arising out of a customer's energy trading account. On July 7, 2009, the same plaintiff filed a motion for leave to amend the existing case to add a purported class action claim on behalf of the holders of FCStone common stock.
On July 8, 2009, a purported shareholder class action complaint was filed against FCStone and its directors, as well as the Company in the Circuit Court of Clay County, Missouri. The complaint alleged that FCStone and its directors breached their fiduciary duties by failing to maximize stockholder value in connection with the contemplated acquisition of FCStone by the Company. This complaint was subsequently consolidated with the complaint filed in the Circuit Court of Platte County, Missouri. The plaintiffs subsequently filed an amended consolidated complaint which does not assert any claims against the Company. This complaint purports to be filed derivatively on FCStone and the Company's behalf and against certain of FCStone current and former directors and officers and directly against the same individuals. The Company, FCStone, and the defendants filed motions to dismiss on multiple grounds. That motion is fully briefed and pending decision.
As previously discussed, the staff of the Fort Worth Regional Office of the SEC is conducting a formal investigation of FCStone's disclosures and accounting for losses associated with the energy trading account, which occurred prior to the Company's acquisition of FCStone on September 30, 2009. During the quarters ended March 31, 2011 and June 30, 2011, certain employees of the Company testified before the SEC in connection with this investigation. The Company is cooperating fully with the SEC staff in its investigation, but cannot predict the scope, duration or outcome of the matter.
On February 24, 2011, the Company's Board of Directors formed a special committee to conduct an independent investigation of FCStone's disclosures and accounting for losses associated with the energy trading account. The Company's Board of Directors determined that it would be appropriate and consistent with its governance and oversight responsibilities to form the special committee to investigate these matters as they pertain to the private litigation and the SEC investigation described above. The special committee, which is comprised solely of independent directors of the Company who were not formerly directors of FCStone, has retained an independent law firm to represent and assist it in its review.
Convertible Note Holder Litigation
On October 20, 2010, three investors in the Company's senior subordinated convertible notes due September 2011 (the “Notes”), consisting of Highbridge International LLC, LBI Group Inc. and Iroquois Master Fund Ltd., filed suit against the Company, claiming that the acquisition by the Company of FCStone in September 2009 resulted in a change of control as defined in the Notes and that, as a result, the Company should have afforded them the opportunity to have the Notes redeemed at a 15% premium. The investors also claimed the right to penalty interest at the rate of 15% per annum established in the Notes. The investors held Notes with a principal amount of $13.0 million at the time of the commencement of the litigation.
On April 21, 2011 the Company's motion to dismiss the investors' lawsuit was denied. Accordingly, the lawsuit is expected to proceed to trial, with discovery expected during summer and fall of 2011. Prior to April 21, 2011, one of the investors, Iroquois Master Fund Ltd., converted $3.0 million of its $4.0 million investment in principal amount of the Notes, and accrued interest, into 139,136 shares of common stock of the Company. On April 25, 2011, Iroquois Master Fund Ltd. converted the remaining $1.0 million of its original $4 million investment in the Notes, leaving $9.0 million in principal amount of the Notes outstanding as of June 30, 2011.
During July 2011, LBI Group Inc. sold its entire $5 million investment in principal amount of the Notes to Leucadia National Corporation (the holder of approximately 8% of the outstanding common stock of the Company), filed a stipulation of discontinuance in the aforementioned lawsuit and released the Company from any further claims in connection with its prior investment in the Notes.


Sentinel Litigation
On January 21, 2011 the bankruptcy trustee of Sentinel Management Group, Inc. filed a motion for summary judgment against one of the Company's subsidiaries, FCStone, LLC, on various counts in the adversary proceedings filed in August 2008 against FCStone, LLC and a number of other FCMs. The nature of these adversary proceedings has been disclosed in previous filings of the Company. FCStone, LLC filed its response on May 10, 2011.
Apart from the above, there have been no material developments in previously reported litigation, and no other reportable events have occurred during the quarter ended June 30, 2011 or through the date of this filing.
Contractual Commitments
Contingent Liabilities - Acquisitions
The Company has a contingent liability relating to the acquisition of Hencorp Becstone Futures, L.C., which was renamed INTL Hencorp Futures, LLC ("Hencorp Futures"), which occurred during the first quarter of 2011, which may result in the payment of additional consideration – see Note 16. The acquisition date fair value of additional consideration is remeasured to its fair value each quarter, with changes in fair value recorded in current earnings. The change in fair value for the three and nine months ended June 30, 2011 was an increase of $0.1 million and $0.3 million, respectively, and is included within ‘other expense’ in the condensed consolidated income statements. The present value of the estimated total purchase price, including contingent consideration, is $6.2 million at June 30, 2011, of which $2.5 million has not been paid and is included within ‘accounts payable and other liabilities’ in the condensed consolidated balance sheets.
The Company has a contingent liability relating to the acquisition of the Hanley Companies, which occurred during the fourth quarter of 2010, which may result in the payment of additional consideration. The acquisition date fair value of additional consideration is remeasured to its fair value each quarter, with changes in fair value recorded in current earnings. The change in fair value for the three and nine months ended June 30, 2011 was an increase of $1.8 million and $3.6 million, respectively, and is included within ‘other expense’ in the condensed consolidated income statements. The present value of the estimated total purchase price, including contingent consideration, is $50.9 million at June 30, 2011, of which $19.2 million has not been paid and is included within ‘accounts payable and other liabilities’ in the condensed consolidated balance sheets.
The Company has a contingent liability relating to the acquisition of the RMI Companies, which occurred during the third quarter of 2010, which may result in the payment of additional consideration. The acquisition date fair value of additional consideration is remeasured to its fair value each quarter, with changes in fair value recorded in current earnings. The change in fair value for the three and nine months ended June 30, 2011 was a decrease of $1.6 million, respectively, and is included within ‘other expense’ in the condensed consolidated income statements. The present value of the estimated total purchase price, including contingent consideration, is $15.1 million at June 30, 2011, of which $6.0 million has not been paid and is included within ‘accounts payable and other liabilities’ in the condensed consolidated balance sheets.
The Company had a contingent liability relating to the acquisition of Compania Inversora Bursatil S.A. Sociedad de Bolsa. The Company paid approximately $1.7 million on the date of purchase and was obligated to make additional payments, depending on the level of revenues achieved. Under the purchase agreement, the Company was obligated to pay an amount equal to 25% of the net revenues if such net revenues are in excess of $2.5 million and up to $3.0 million, 35% of the net revenues in excess of $3.0 million and up to $4.0 million, and 40% of the net revenues in excess of $4.0 million for each of the two twelve-month periods ending March 31, 2010 and 2011 to the sellers as additional consideration. The net revenues for the twelve-month period ended March 31, 2011 were below the minimum target, so no further amounts will be paid.
Convertible Subordinated Notes
As discussed in Note 12 – Convertible Subordinated Notes, the Notes may be converted into shares of common stock of the Company at any time by the holders. The Notes also contain a provision to increase the interest rate by 2%, subject to certain conditions measured on a quarterly basis.
Exchange Member Guarantees
The Company is a member of various exchanges that trade and clear futures and option contracts. Associated with its memberships, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchanges. While the rules governing different exchange memberships vary, in general the Company’s guarantee obligations would arise only if the exchange had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned among the other non-defaulting members of the exchange. Any potential contingent liability under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the condensed consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote.
Impairment
The Company recorded an impairment charge of $0.7 million in the first quarter of 2010 in connection with INTL Sieramet LLC, a corporation in which it holds a 55% equity interest. This amount is recorded within ‘bad debts and impairments’ in the condensed consolidated income statements for the nine months ended June 30, 2010. The impairment charge recognizes the pending liquidation of INTL Sieramet and the probability that there may be incomplete recovery of the full value of its assets.
Change in Control Contingency
In connection with the acquisition of FCStone, certain of FCStone’s management and executive officers are participants in FCStone’s Change in Control Severance Plan (the “Severance Plan"). The Severance Plan provides that if during the two-year period following the completion of the merger agreement, a participant terminates their employment for “good reason” or the Company terminates the participant’s employment other than for “cause” or on account of death or disability, the Company will be committed to pay certain compensation amounts to the participant in a lump sum amount. The maximum potential commitment for all participants is $4.5 million. At June 30, 2011, no actions have occurred or are anticipated which would trigger payments under the Severance Plan.