NEW YORK, Oct 13 (Reuters) - A multimillion dollar penthouse on New York's ritzy Park Avenue was once a sign of success for the British-born chief executive of Refco Inc. <RFX.N> one of the world's largest commodities and future brokerages. But Phillip Bennett is now a prisoner of that success, confined to his apartment and monitored electronically after being charged in a U.S. court with securities fraud. Authorities says Bennett, 57, hid at least $430 million in bad debts from investors which boosted Refco's financial strength as the company went public this summer, raising $583 million in an initial public offering in August. Bennett, a former Cambridge University rugby player, walked away with bulging pockets for his 34 percent stake in Refco following the company's share sale at $22 each. His shares were estimated to be worth about $1.6 billion before Refco's stock nosedived over 72 percent this week from last Friday's closing price of $28.56 as the scandal widened. "It seems to me that the board of directors was not really investigating what Bennett was doing in this situation," said Edward Ketz, an associate professor of accounting at Penn State's Smeal College of Business. In court, Assistant U.S. Attorney David Esseks fought bail, calling Bennett a flight risk, worth up to $1 billion with homes on Park Avenue and in Gladstone, New Jersey and funds possibly overseas. The court took away his passport. Bennett, who took over as chief executive at Refco in 1998, told a colleague in a taped conversation on Monday that he was going to Europe within two days. But on Tuesday night he was arrested and appeared in court Wednesday, dressed in green pants and a blue sweat shirt. Bennett's lawyers argued there is no case. Bennett repaid the $430 million debt with interest on Monday and had received no personal profits, they said. "There is no indication that this man is going anywhere," said his lawyer Gary Naftalis at a bail hearing, adding: "His assets and life are here in the U.S.". Bennett has been in the U.S. since 1978. The rain-soaked figure who left court huddled under an umbrella was a far cry from the dapper, high-flying executive described by colleagues as never having wrinkled shirts and who rang the opening bell at the New York Stock Exchange on Aug. 11. The case has drawn comparisons to the furor over telecoms giant WorldCom Inc.'s massive fraud, the biggest Wall Street scandal to date. It resulted in former chief executive Bernard Ebbers being sentenced to 25 years in prison for his role in the fraud that led to the largest U.S. corporate bankruptcy. Former colleagues who did not want to be named described Bennett as a workaholic who arrived at the office early and did not tend to socialize much within the firm. Married with two children, Bennett joined Refco in 1981 from Chase Manhattan Bank, where he worked in lending. By 1983, he was chief financial officer at Refco Group and in 1998 took over the top job, helping continue an aggressive drive that built a small futures broker into the global Refco empire with operations in 14 countries, 2,400 staff, and a huge global derivative clearing operation. At that time Refco's then-Chairman Thomas Dittmer described Bennett as having a "bullet proof" track record of sound decision making and a "recognized financial stature." The Wall Street Journal said he was known as "the closer". But his years at the helm of Refco have not been without their troubles and traders said the scandal would dent Refco's reputation, already marred by numerous run-ins with the authorities and rivals due to its aggressive acquisitions.
Thanks for the numerous informative posts both here and in other threads regarding the Refco situation. Good to see that at least someone pays attention to facts...a rare quality these days. OldTrader
People, when you are dealing with criminals, relying on the segregation of customer funds is like wearing a condom with a hole in it. Refco already has a prior history of embezzling, and later returning, segregated customer funds. http://www.bloomberg.com/apps/news?...=top_world_news Refco Loses Clients and Cash After Chief's Arrest (Update1) Oct. 13 (Bloomberg) -- Refco Inc. customers are switching to other brokers and pulling money from their trading accounts following the arrest of suspended Chief Executive Officer Phillip J. Bennett on fraud charges. Jerome Israelov, a wheat trader at the Chicago Board of Trade who uses Refco to match his transactions, will today cut the funds he keeps on account at the broker by at least half, and he said many of his peers are doing the same. Competitors including Chicago-based Peregrine Financial Group Inc. said they have won clients that ditched Refco this week. ***[see link for excised portions of full article] Back in 1994, Refco was fined $1.25 million for dipping into customer accounts to pay loans, borrowing as much as $123 million from the funds on an ``almost daily basis,'' the Commodity Futures Trading Commission said at the time. ``Whether or not funds are at risk or whatever, there's the attitude of, `why would I allow someone that has done this type of thing to receive income from me?''' said Russ Wasendorf Sr., chairman and CEO of Peregrine. ``The investor is simply saying, `listen, I am going to vote with my feet.''' *** [see link for full article] Exodus A client exodus may halt a three-year surge in revenue at Refco, after sales grew 60 percent and customer funds almost doubled. *** [see link] ``I usually keep about $100,000 in my account, and I will reduce that to $30,000 or $40,000 or $50,000,'' Israelov said yesterday. He is one of dozens of independent traders, known as locals, who use Refco at futures exchanges in Chicago. ``There are other locals that are also reducing the amount of money they are keeping,'' he said. Refco in 1994 transferred customer funds from segregated accounts into non-segregated accounts without disclosing the transactions to customers, the CFTC said. Refco, which promoted Bennett to CEO in 1998, agreed to pay the fine, without admitting or denying the allegations. Futures brokers are required to keep customers' money in accounts separate from their own funds and to report daily to regulators on the amounts held. Because of those safeguards, that money is probably safe, Israelov and Wasendorf said. *** [see link] Traders say they aren't taking any chances. ``People don't want to do business with anyone who is fooling around with the numbers,'' said Ray Cahnman, chairman of trading company Transmarket Group in Chicago. Transmarket lost some of its futures traders last year to Refco. ``In this business, you've got to be pristine.'' To contact the reporter on this story: Ann Saphir in Chicago at asaphir@bloomberg.net. Last Updated: October 13, 2005 08:04 EDT
You understand nothing. The mac accounts are not frozen and money can be freely withdrawn. Go and sit down and then we can get some peace from what's coming out of your arse.
Yes. However the news for Refco only continues to deteriorate - see this mornings Wall Street Journal Article. Essentially they are saying that traders are reducing their exposure to Refco altogether - although this is only part of the story. Read the article ...
ummm not quite sure where you are getting your information but as someone who actually works at mac I can confirm it's business as usual and just as easy to withdraw money. Probably best not to post if you havnt got a clue what your are talking about. "and another hint - I understand in the UK all traders at Mac who still have funds with them have had their accounts frozen. Thankfully as soon as the news came out earlier this week most bailed out. As you should be aware Mac is on the futres side as well."
I was involved in a case involving loss of customer segregated funds, so I'm reasonably familiar with the risks involved. Firstly, you CAN lose customer segregated funds even if you don't lose any money on your own trades. There are two main ways - the first is illegal activity by the broker. They can quite easily dip into your funds fraudulently - yes it's illegal but they can do it with very little difficulty indeed. In fact, I understand that Refco were fined for just that in the past. Secondly, so-called "segregated" customer money, although separate from the broker's funds, can actually be pooled with other customers. So if someone blows up leaving a huge debt in their account, and this debt is larger than the assets of the FCM and their General Clearing Member's maximum liability, then the rest of the shortfall can - quite legally - come out of customer accounts. This happened in the UK (which has a v similar clearing system for futures as the US) in 1998/99 with the collapse of Griffin. I know because I had a small account there and lost about 40% of my supposedly safe "segregated account" when they went belly up. So anyone who says that customer segregated accounts are totally safe, is incorrect. There are two clear risks which, whilst unlikely, are there and worth considering.
Refco customers may also wish to peruse this legal paper: http://www.dechert.com/library/Griffin Trading Case SErvin 1-01.PDF Anyway, this is all moot, since you can use another FCM and thus avoid all the Refco-specific risk surrounding the recent news. Switching your funds is a no-brainer.
"refco llc winding down business" according to bloomberg terminal headline, sourced from the Depository Trust co. website said only new business is offsetting positions