US bankruptcy judge says Refco unit should liquidate By Dan Wilchins Reuters Tuesday, March 14, 2006; 10:17 PM NEW YORK (Reuters) - A U.S. federal bankruptcy court judge said on Tuesday that Refco's offshore broker-dealer unit should liquidate its assets separately from the rest of the company, but gave creditors and the company time to start working out a plan for doing so. U.S. Bankruptcy Judge Robert Drain also ordered the appointment of a trustee to oversee the liquidation of the Refco Capital Markets unit. The two rulings gives some customers of the Refco <RFXCQ.PK> unit more leverage in negotiating for a bigger share of the proceeds from a liquidation, and also puts more pressure on parties in the bankruptcy to craft a bankruptcy plan quickly, lawyers involved in the bankruptcy said. "I don't think this ruling presents any problems. Pressure for everyone to act quickly is good," Refco chief executive Harrison Goldin told Reuters after the ruling. The decision resolves one of the most difficult issues in Refco's bankruptcy: whether clients of the company's offshore broker/dealer unit were creditors on similar footing with unsecured creditors like bondholders, or whether they were entitled to special status. A group of the creditors sought to regain their assets by converting the Refco Capital Markets bankruptcy into a "stockbroker liquidation" under chapter 7 of the U.S. bankruptcy code. Such a liquidation would require the unit to sell assets and distribute proceeds first to parties deemed by the law to be clients. Judge Drain said a stockbroker liquidation is meant to protect customers of a stockbroker, and that Congress clearly intended to do so. Lawyers for New York-based Refco and the unsecured creditors committee said such a liquidation would unfairly favor a small group of customers. This group would include, for example, investors who held securities at the unit, but exclude clients who traded foreign exchange, Refco said. Judge Drain said that his preliminary ruling on the stockbroker liquidation will not take effect for at least 45 days, which is not enough time to negotiate a plan but is enough time to confirm that necessary steps are being taken. The extra time for parties to negotiate will prevent the forced sale of certain illiquid assets. Selling those assets too quickly could have eroded their value, Refco CEO Goldin had cautioned in an affidavit. Refco filed for Chapter 11 protection from creditors on October 17, one week after the firm said former chief executive Phillip Bennett had hidden $430 million of bad debt. The company is now selling assets to pay creditors that claim they are owed up to $16.8 billion. Before its troubles, Refco Inc. was one of the biggest market makers for commodities and financial futures, allowing funds and companies to trade contracts on commodities, bonds and currencies. Bennett has pleaded not guilty to eight counts of conspiracy, fraud, and other charges.
"This group would include, for example, investors who held securities at the unit, but exclude clients who traded foreign exchange, Refco said." Hmm, wished I had access to the court transcripts. Refco says that customer will be favored, except for FOREX customers.... Will this hold true for Refco FX's case. Note, this was REFCO quote, not the Judge's..... And yet I still have to pay taxes on gains that I CAN NOT ACCESS to pay my TAXES....
Zone Trooper, all this is about Refco Capital Markets customers....not RefcoFX customers...... the Refco Capital Markets FX customers are bigger fish players that actually traded on the professional interbank platform. They also had collateral in the form of bonds and not only cash like RefcoFX customers. Still leaves us out in the dark. Hope FXCM succeeds in buying our accounts. See if 11th of april will not be just another delay date....
Yes, I know that. But this may or may not give us idea on how the Judge feels about FOREX trading. This just might have never heard of FOREX until this case came up, so it's hard to know how he will rule since it's a unregulated narket.
Press Release Source: Forex Capital Markets LLC FXCM Ends Negotiations With Refco Creditors Monday March 20, 12:48 pm ET NEW YORK, March 20 /PRNewswire/ -- Forex Capital Markets LLC (FXCM) today announced that it has ended negotiations with the creditors of Refco, the bankrupt futures trader, to acquire the assets Refco FX Associates, Refco's unregulated currency trading operation. "We have done everything in our power to rescue the clients of Refco FX Associates," said Drew Niv, chief executive officer of FXCM. "From the very beginning our purpose has been to make their 17,000 clients whole. If successful, our efforts would have meant that every one of the 17,000 Refco F/X customers would have been paid back in full." In November 2005, FXCM agreed to acquire Refco F/X Associates for approximately $110 million, subject to an auction and to Bankruptcy Court approval. In February FXCM won the auction, since it was the only company that made an actual bid. Refco's creditors objected to FXCM's victory, claiming the price was too low. In an attempt to resolve objections to the sale of Refco F/X Associates to FXCM by a group of Refco creditors, FXCM raised its offer to $130 million, essentially bidding against itself to save the clients of Refco F/X Associates. Refco and its creditors remain unresponsive to FXCM. "While our hope remains to effect a transaction, the creditors' demands remain unreasonable and their position inflexible," continued Mr. Niv. "They leave us no choice but to abandon negotiations at this time."
I just came across this one, and I apologize if this has been posted already in the forum. However, one part that perplexes me is the part where it says, "Earlier this month, Refco set April 11 for a new auction of its foreign exchange assets." I was aware that the court had set another hearing on April 11th to give time for FXCM/RefcoFX/Creditors to continue with the negotiations when FXCM still had their offer in place, but wasn't aware of any new auction being set as well? Was anybody else aware of this? (link:http://news.yahoo.com/s/nm/20060320/bs_nm/financial_refco_dc_1) Can someone please shed some light into this matter for me? But if the April 11th hearing was set to indeed initiate another auction, does anybody else find this to be an exercise in futility? Nobody, besides FXCM, had submitted a bid for RefcoFX in the first auction, so what's the point of another one? And even if another acution is held, there's a great probability that the bid will be even lower than what FXCM had initially offered. By Jonathan Stempel Mon Mar 20, 6:59 PM ET NEW YORK (Reuters) - Refco Inc.'s (Other OTC:RFXCQ - news) bankruptcy reorganization suffered a setback on Monday when Forex Capital Markets LLC abandoned talks to buy the company's unregulated currency trading unit. The futures and commodities broker has been selling assets to pay creditors, to whom it has said it owes $16.8 billion. Refco filed for court protection on October 17, amid an exodus of customers following the disclosure that former Chief Executive Phillip Bennett hid $430 million of bad debt. Forex Capital had been the only bidder for the currency unit, Refco FX Associates LLC, and agreed to buy it for $110 million. The unit has about 17,000 retail client accounts. After a committee for unsecured Refco creditors complained that the original price was too low, Forex Capital said it raised its offer to $130 million. "We knew the creditors were unhappy with our bid, but every time we raised it, they would not give us a firm counteroffer with a real price attached to it," Drew Niv, Forex Capital's chief executive, said in an interview. "If enough pressure were brought to bear, this deal can be resurrected," Niv continued. Calls to Refco and a lawyer for the creditors committee were not immediately returned. Earlier this month, Refco set April 11 for a new auction of its foreign exchange assets. Last November, Refco sold its regulated U.S. commodity futures business to a unit of Britain's Man Group Plc (EMG.L). NEW EXAMINER In a court filing last Friday, the U.S. Department of Justice said it appointed Joshua Hochberg, former head of its fraud unit, to investigate claims of fraud and other misconduct that may have led to Refco's Chapter 11 bankruptcy filing in Manhattan. The appointment of Hochberg, a partner at McKenna Long & Aldridge LLP in Washington, D.C., was announced less than two weeks after U.S. Bankruptcy Judge Robert Drain authorized the appointment of an independent examiner for Refco. Hochberg, a white-collar crime specialist, helped lead the Justice Department's response to accounting scandals following the 2001 collapse of Enron Corp. Drain's ruling had disappointed creditors, who said naming an examiner would increase Refco's reorganization costs, leaving less money for them. The judge had earlier rejected the government's bid to appoint a trustee to run Refco's business. A spokesman for Hochberg, who was traveling on Monday, declined to comment. Harrison Goldin, Refco's chief executive, said in a statement that Hochberg was "an outstanding choice," and that Refco's management would cooperate fully with him. An examiner has fewer powers than a trustee. U.S. bankruptcy law allows an examiner to investigate a debtor's alleged misconduct when it is in creditors' interest, or when the debtor owes more than $5 million. Goldin is a principal of Goldin Associates LLC, and a former New York City comptroller. Drain on Friday gave final approval for the hiring of Goldin Associates as Refco's crisis manager. Bennett has pleaded innocent to eight counts of conspiracy, fraud and other charges.