Blog round-up: Litigation buzzards circle Refco

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Cambridge-educated Briton Phillip Bennett, former chief executive of Refco, was confined to his penthouse on New York’s Park Avenue under a $50m bond following allegations of fraud, while bankers, including Goldman Sachs, were under pressure to shore up the business.

Bennett is accused of disguising the finances of Refco, one of the world’s largest commodities and broking houses, by hiding $430m in debts it was owed by a subsidiary. Refco shares – which only listed in August – lost three-quarters of their value. Grant Thornton, Refco’s auditor and target of a class action lawsuit, said the scandal had been caused by “a purposeful deception”.

Bernard Klein, who says he managed accounts for Refco, was concerned about how he could prepare for the worst. “I’m looking into transferring accounts but if they go bankrupt b4 clients are able to pull out, what the segregated accounts gonna look like, is it all over?”

The ‘loved-one’ of a Refco staffer, “Steven”, vented his fury at Bennett. “So glad you could afford the $50m bond to get out of jail, while the employees you left behind wait and wonder for the next shoe to drop.”

From the home of Enron, attorney Tom Kirkendall on Houston’s Clear Thinkers’ blog describes ‘Enronesque’ circumstances as the “litigation buzzards” circle Grant Thornton.

A meeting called by the Federal Reserve and 14 participants in the credit derivatives markets last month rang alarm bells for Canadian former broker, Bill Cara. In his “sunlight is the best disinfectant” posting, he calls for information about “precisely what did Alan Greenspan tell these 14 key bankers in confidence?”

“The Fed meeting took place on September 15, and Refco went down exactly 16 clear business days later,’ he says.

“What investigators and class-action litigators need to know is precisely what did Alan Greenspan tell these 14 key bankers in confidence, and what actions did each of them take to save their own capital. If there is going to be full public confidence in the Federal Reserve System and the capital markets, after Refco, this question must be answered.”

Hedge fund manager Victor Niederhoffer – involved with a fund that was wiped out in the 1997 Asian financial crisis and caused losses for Refco – has defended himself in a blog. As his name resurfaces in reports about Refco, he says he has had no contact with Refco for seven years apart from a call to Phillip Bennett six years ago. “He wasn’t in and he didn’t return my call.”

Opining that “what has happened is equal to a bank run”, the writer at, is concerned the complex derivatives market harbours more “D-bombs”.

The legal minds behind point out that Phillip Bennett had earned the nickname of “The Closer” for his ability to close deals, as he built Refco into the largest futures trading firm. Bennett was charged with one count of securities fraud in a criminal complaint filed in the Southern District of New York, and they explore the question of how a $430m debt could cause such a crippling effect on the $4bn Refco business: “How often do you see a fraud in which the perpetrator repays the money as soon as the deception is revealed, yet the company is pushed to the brink of insolvency because of the conduct?”

The seasoned investors who backed Refco are listed by former software company owner Al Devito, on, a heavyweight line-up that includes T Rowe Price, Oppenheimer Fund, Putnam Investments, Thomas Lee Partners, New York State Retirement Fund, as well as underwriters Goldman Sachs, Credit Suisse, and Bank of America.

Fingers are also pointed at the professionals, in the anonymous posting by K9 on “What the hell were all the Attorneys, Private Equity Guys (yes you Tom Lee), bankers, accountants etc. doing? How do you miss a $400m receivable?”

Finally, sarcasm is used in good measure to analyse the Refco troubles, under the posting “Lend me a million?” on

“I have spoken to my boss about the possibility of obtaining $430m dollars in loans from my company in order to pursue some personal projects, such as ownership of a small but well-situated island in the Caribbean. But apparently, only CEO’s qualify for that sort of treatment. Sadly, he persisted in this argument even after I’d explained that I’d be more than happy to keep the transaction off the books so that our investors wouldn’t get all worried about it.”

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