When Tarek El Marhri told a French social security official he had got a job at Refco and should stop receiving unemployment benefit, she asked for his pay slip.

But he claims Refco refused to give him a pay slip, so it was impossible to get off the dole. In the end, this proved lucky, as the US brokerage also refused to pay him a salary. Unemployment benefit was all he had to live on for the eight months he spent at Refco, until he quit in July 2004.

Mr El Marhri, 26, and Erick Tripoli, 31, admit their story sounds ludicrous. “Why would anyone keep working for a company that never pays you?” asks Mr Tripoli.

At first they say they were so proud to be working at one of the world’s top brokerage firms, they refused to believe their dream job could turn into a nightmare.

“When you arrive at Refco, for most people it is like the Real Madrid of finance. When they say this is how it is done, you don’t ask any questions,” says Mr Tripoli.

“After a month, they told us they would pay us with bonuses, which in France is not legal.

They said, ‘don’t worry, we will give you a bonus of 40 per cent of the profits you make. Look, at Refco everyone is rich. So you do the same’,” he says.

Mr El Marhri says the company used a “carrot and stick” approach. The stick was a constant stream of new recruits, which allowed Refco to threaten anyone not happy with immediate replacement.

“The carrot was that they kept saying ‘soon we will start paying salaries’. It was like the women who are being cheated on by their husbands who keep telling them ‘this week I will leave my mistress,’ but they never do,” says Mr El Marhri.

While Refco offered no French contracts, the two traders did sign a “trading agreement” with Mac-Futures Limited, a UK brokerage acquired by Refco in March 2003, later renamed Refco Trading Services.

The agreement states: “Nothing contained in this agreement shall be construed or have effect as constituting any relationship of employer and employee or partners between Mac-Futures and you.”

Anne-Elisabeth Combes, a lawyer specialising in employment law at Jeantet Associés in Paris, which is not involved in the case, says the traders will need to prove that they were de facto employees of Refco, in spite of signing an agreement stating otherwise. Mrs Combes says it is illegal in France to employ people as freelancers or contractors, without a salary, contract or social security declarations, if they work “under the control and supervision of the company”.

She says lawsuits over “clandestine employment” are common in the construction or restaurant industries, but are rare in the financial sector.

If the traders’ case is successful, Refco could face a subsequent criminal suit by the state prosecutor, with a maximum fine of €225,000 ($272,000) and three years in prison.

Such an “agency agreement” is reasonably common in English law, though it is rarely used for securities traders.

Employment law specialists say such a contract might typically be used to allow sales representatives to a use a company’s name and products in return for a fee.

This kind of contract would be lawful in the UK, and would usually not constitute an employment relationship, especially if the employee was considered to be taking on a degree of personal financial risk.

The two traders claim Refco pushed them to trade big and often. “I was set hourly targets in money and frequency of trades,” says Mr Tripoli.

Similar practices were used for the 40 other traders with whom they worked in Paris, he claims, and for some of their 200 colleagues in London.

The working conditions they describe hardly match a Refco advertisement on the Cergy-Pointoise University website in May 2004 offering “a very attractive performance-based pay-out” for junior electronic day traders in its Paris office.

Mr El Marhri and Mr Tripoli say they were recruited by Refco after it spotted the success of their investment club, Krescendo, through an article in La Vie Financière magazine about the club’s stellar performance between 2001 and 2003.

They say many of the traders in Refco’s Paris office were unemployed before joining the company, including former employees of Crédit Lyonnais and Citigroup. But since Refco filed for bankruptcy last month, they say there has been an exodus of staff in Paris.

Refco also faces lawsuits from French shareholders claiming they were deceived by its IPO prospectus and from Gérard Sillam, a French businessman who claims Refco broke the terms of a 1997 contract and is suing it for $1.4bn of damages in the US and France.

Mr El Marhri and Mr Tripoli have found jobs with other brokerages in Paris. But they suspect they only saw the tip of the iceberg of Refco’s unusual behaviour. “It is hard to believe they behaved like this in their trading activity and the rest of the group was clean,” says Mr El Marhri.

Refco filed for Chapter 11 bankruptcy two weeks ago after the revelation that its then chief executive, Phillip Bennett, had disguised a $430m debt he owed to the company. Mr Bennett, who paid back the debt, has been charged with securities fraud.
Additional reporting by Bob Sherwood in London

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