Refco Owes Jim Rogers Fund $362 Million

Discussion in 'Wall St. News' started by just21, Oct 18, 2005.

  1. adambc123

    adambc123

    No, not spamming - have money stuck in the fund.
     
    #61     Nov 13, 2005
  2. just21

    just21

    Street Sleuth
    Did Refco Need Consent
    To Move Money Offshore?
    Testimony May Help Client
    In Suit Over Stranded Cash;
    Confusion Over Paperwork?
    By PETER A. MCKAY
    Staff Reporter of THE WALL STREET JOURNAL
    December 1, 2005; Page C3

    NEW YORK -- A Refco employee says in a sworn statement that the company moved a big customer's money into an unregulated offshore trading unit without authorization as the brokerage firm imploded, and she didn't believe clearance for the transfer was required.

    That testimony could bolster the key allegation in a lawsuit filed last month by prominent commodity bull Jim Rogers. In the suit, Mr. Rogers claims Refco Inc. harmed investors in two investment funds he founded by leaving more than $360 million of their money stranded in the offshore unit.

    The commodity-brokerage firm contends that its contracts with the Rogers funds gave it leeway to make such moves and that Refco earlier this year expressed an interest in acquiring the funds, making its dealings with Mr. Rogers more of a partnership than a brokerage-client relationship, people close to Refco say.

    The dealings between Mr. Rogers and Refco are one thread in a larger web of relations between Refco and its customers, creditors and backers. Many of these people have disparaged the firm since it froze some operations and put others into bankruptcy-law protection in October after revealing that then-Chief Executive Phillip R. Bennett had hidden bad debts.

    Both sides declined to comment publicly, citing the pending litigation. But lawyers for both sides questioned witnesses in preparation for a trial next month, deposing a Refco clerk and several executives, among others. The matter will come before a federal bankruptcy court in New York that is overseeing all of Refco's assets.

    The testimony reveals that the talks to buy the Rogers funds, which broke off over the summer, were driven partly by Robert Mercorella, who had left an executive job at Refco to work for the Rogers funds, then quit and returned to Refco.

    A Rogers representative also testified that he signed paperwork opening the funds' accounts at Refco without fully understanding those documents and did so at Mr. Mercorella's prompting. Mr. Mercorella didn't return phone calls seeking comment.

    In public appearances and books, Mr. Rogers has urged investors to invest in commodities but avoid risk by using little borrowed money, known as leverage, to do so. The two Rogers commodity funds -- one open to all investors, one private -- are operated by Chicago-based Beeland Management Co., in which Mr. Rogers owns a 69% stake.

    According to testimony by Beeland Chief Executive Tom Price, the management company was looking for a chief operating officer this spring, and Mr. Rogers personally recommended Mr. Mercorella for the job.

    During job interviews, Mr. Mercorella claimed to have connections that could be useful in expanding the Rogers funds, according to Mr. Price. The Beeland CEO said he asked Mr. Mercorella pointedly whether he was a "Trojan horse" sent by Refco to take over Beeland but also noted that Mr. Mercorella had resigned from the brokerage firm before seriously pursuing the Beeland job.

    After several interviews -- and some nudging by Mr. Rogers -- Beeland hired Mr. Mercorella in early June. One of his first priorities was to arrange to use Refco's regulated stock-trading arm, Refco Securities LLC, as the selling agent responsible for marketing the Rogers funds' shares to investors, Mr. Price said.

    Around the same time, Refco also began discussing other roles in earnest with the Rogers funds. Mr. Price said he believed Refco had approached Mr. Rogers earlier in the year about a possible acquisition of his funds, but such talks heated up at meetings with Beeland beginning in June.

    In testimony, Mr. Price recalled: "It started out...we like your funds. We want to make them the flagships of our alternative investment division. That rolled over into, maybe we'll acquire Beeland. ...It became larger and larger."

    In August, talks about Refco buying the Rogers funds broke down, people familiar with the matter said. But the funds still opened accounts at both Refco's regulated commodity-trading arm, Refco LLC, and its offshore trading unit Refco Capital Markets Ltd., which is subject to few customer protections.

    According to the testimony of both Mr. Price and Beeland Chief Financial Officer Allen Goodman, the Rogers funds soon opened several brokerage accounts at Refco because Mr. Mercorella said it would aid the relationship between the two sides.

    Mr. Price said the funds were to maintain about 10% of their assets -- a mix of cash and bonds -- as a cash margin to guarantee trades of commodity-futures contracts. The rest would be kept as "excess margin" in case an unfavorable market swing required the funds to put up more collateral to guarantee their trades.

    Mr. Price testified that all the assets in the public Rogers fund should have been in the regulated Refco LLC and that the brokerage firm shouldn't have made transfers of its own volition to the unregulated offshore accounts until the fund's investors were notified the brokerage firm could do so. In the private Rogers fund, he said, ceding control to Refco would have required approval from a two-thirds majority of investors, an unlikely scenario.

    However, Mr. Goodman, the Beeland finance chief, seemed less certain of such details. In his testimony, Mr. Goodman said he signed contracts to open the funds' brokerage accounts at Mr. Mercorella's direction but didn't understand them, even when he later signed a revised offering prospectus for the public fund with the Securities and Exchange Commission describing the new accounts.

    A Refco attorney deposing Mr. Goodman asked him to specify which unit of the brokerage firm he thought he was dealing with. "Wherever the futures positions were transferred to," Mr. Goodman responded. "Refco was Refco."

    Mr. Mercorella resigned from Beeland in September and returned to Refco. Mr. Price said that Mr. Mercorella emailed his resignation and also called, possibly from a telephone at Refco's offices, where Mr. Mercorella had a desk.

    The Bennett news broke the next month and almost immediately afterward Refco transferred $22.9 million from the Rogers funds' accounts at the brokerage firm's regulated unit to the offshore operation. It ultimately moved the entire $360 million offshore.

    Rogers fund attorneys questioned Yelena Kim, a financial analyst at Refco whose duties were largely clerical, regarding that transfer. Ms. Kim said that if she saw a shortfall in a margin account at regulated Refco LLC, she would check with her boss, then transfer any necessary money from an account at the unregulated Refco Capital Markets. Likewise, she would send excess margin from Refco LLC to Refco Capital Markets. That is what happened in the case of the $22.9 million October transfer, she testified.

    When asked by a Rogers attorney whether any of the steps she described constituted an authorization by the Rogers funds to make the October transfer in their accounts, Ms. Kim replied: "No, I did not think that we needed authorization."
     
    #62     Dec 1, 2005