I'm amazed at how flippant so many people are about this saga. Many cite the fact that the debt has been repaid. Big deal. In addition to the concerns about banks and suppliers not providing favourable credit terms, and the concerns about customers pulling their money, there is also one broad issue that has escaped a lot of people: trust Why should a customer continue to trade with Refco if their financial integrity is lacking? Why should a customer even continue to have $10,000 in a (dormant) Refco account if they cannot be trusted with $430 million? Why should a bank or a supplier provide favourable credit terms? Why should I invest $10,000 in Refco stock if they cannot provide legitimate financial records? Then there is the risk of lawsuits, credit rating downgrades, SEC investigations, adverse media publicity, additional shoes to drop. I'd say that the company has a better chance of going to $1 than $20. Even if you're playing this thing long for a short-term bounce (and good luck to you), you're catching a falling knife right now. To me the case for going short is much stronger. The only reason I have not pulled the trigger is that I've been busy trading other stocks, and in the brief glimpses that I have had at RFX I've found it hard to find an entry point with which I am happy.
One theory for what went on.... "One plausible theory is that Refco had uncollectible debt that it or some of its employees did not wish to write down, accountants said. The debt was instead transferred to a company controlled by Bennett. That was a crucial step. Had an insolvent company owed the debt, rather than a company controlled by a wealthy individual like Bennett, Refco would have had to write it off, the accountants said. It's not clear who demanded the liability be shifted to a company controlled by Bennett, but if it was Bennett himself, he may have been looking to protect his substantial investment in Refco, accountants said. "Related parties may do something that's not in their short-term interests, to further their long-term interests," said an accounting professor who asked not to be named. "Here the long-term goal might have been to make Refco look better." At the time of the company's August initial public offering, directors, Bennett and other managers held 36.5 percent of the company. But because Bennett has paid off the full $430 million, he could argue that it was legitimate for Refco to avoid writing down the asset, UNC's Bushman said. " Though Bennett has paid off the entire $430 million, much of it was not collectible, Refco said and would have needed to have written it off otherwise. That would be a bitter pill for a company with just $500 million of equity to swallow, because it would make Refco look much weaker, said Robert Bushman, forensic accounting professor at University of North Carolina at Chapel Hill (UNC). Being perceived as a strong company is crucial for brokers like Refco, which often hold assets for investors, Bushman said.
http://www.nypost.com/business/55204.htm Get out, and stay out. A dollar bounce isn't worth what's coming. These are naked short sales, probably marked to market. If one of more of these stocks blow up, 400 mm becomes a billion very fast. This is a serious, serious blowup, probably about to overtake mjk as the #1 SIPC failure of all time. Reference ENWV. There's 4mm shares parked at a clearing firm with no daddy. THe clearing firm is done. Refco has a Wells notice over SDNA. But there were hundreds of stocks done at landenberg thalman that could be there too.
Do we forget from previous posters that all of the brokers have /had problems. We have read about ET funds disappearing, IB funds taking longer to get credited, slow execution, price flow through etc. I agree with you that Refco has hugh problems, but they just became a partner in China, have office throughout the world. The majority of companies adjust their accounting all the time. We have analysis upgrading stocks a few days/weeks before earnings to find out the contrary. Corporations are always putting the best foot forward. No one knows what price it is going to be or how long it will stay down etc. What is at hand at this point is what the market will preceive the stock value to be. I believe that a few personell in a company of this size will not cause it to collaspe. I believe, not all, if very few accounts will be closed that will make the stock value be a few dollars. I personally believe the stocks price at this point is good value as do others. What I find interesting is that the market halted the stock and opened it less than an hour prior to close. This obvioulsly causes a short feeding frenzy. Institutions are buying as are hedge funds etc. They are not going to walk away from millions of dollars. Their financial intergrity is still there, they were active prior to the IPO. I agree lawsuits will have and do damage and take time but I personally believe the stock at current prices or lower provide a hugh discount on the stocks true value, even if one goes off the pre IPO. I agree the opportunity for short was / is great..but my concern is that we never know what news will come out that causes the stock to bounce hard long. I feel safer going long and believe the stock will go lower at which time I will have the opportunity to add to my position. good luck with your trades today w
Theoretically, no. Customer money is *always* kept separate from corporate funds in what's known as Segregated Account... and it's a big, big issue with the Revenooers. Should Refco go bankrupt customers should get *all* of their money back.
If I've read this correctly the receivables in question don't have anything to do with stock short sales necessarily (let alone nakes shorts) - they are receivables on accounts that went bust and into the red. (Refco is heavily weighted toward derivatives anyway. Is it even a meaningful equities player??) And I don't think there should even be a big issue with a related party buying the receivables per se, as long as prices are arms length. The troubling thing is that Bennett actively took pains to hide the nature/ownership of the receivables - that just doesn't add up. Having just read one of the books on Enron, I'm dumbstruck that someone in 2005 would take a company public without getting that kind of accounting in order first ... A last note, given that the receivables were negative margins on busted accounts, we should recognize the collectability of those accounts must be crap - or near-crap, if such a rating exists. That Bennett paid them in full out of his own pocket should go a long way, IMO - no need to destroy the firm here.
If any of the news postings about RFX are correct then this accounting issue started years ago...5 plus... Refco has been doing business, gone public and has increased its customer base and dollar value. This problem did not affect its daily business in any fashion. It is an accounting, perhaps SEC or other regulatory violation? Reguardless the company carried on business and traders funds were not at risk. Accounting reports had this accounting on file..for years...just not properly disclosed? Fear is what is causing a lot of people to over react. and that fear will give us traders a chance to make money.. It's the beta of the stock last few days that make one jump ship not the underlying value. w