any idea on how this will affect, if at all, Refco Trading Services (MacFutures)? Was Bill Sexton, newly appointed CEO the one in charge of acquiring MacFutures?
Now this is something I may know something about. Bill Sexton was mainly focused on the ops and technology side of Refco. The key person was Joe Murphy. Now, I maybe biased since I really liked Joe Murphy in the couple of times I met him. The fact that he was promoted today after the fiasco is a clear sign that the futures side will experience little changes. The fact that Bill Sexton came from the NYBOT to Refco will probably mean a more future focused firm. All of this should signify that Refco won't move away from MacFutures, unless, of course, if MacFutures doesn't perform financially. Maggio was on the securities side, and that's the side that was under separate SEC investigation prior to today. Rufus
You are absolutely right, I am not sure they will emerge from this still as an independent entity as well. Comparatively, Refco doesn't have the size nor muscle of Tyco, for instance. In fact, when Dennis Kozlowski went under SEC probe, Tyco stocks did a similar tumble, it has since recovered around 65% of the value. Since I don't trade very much securities. Let me make a prediction (heh), RFX will touch single digits (maybe $7-8 range) once all the law suits come out, especially if any arrest warrants get issued. Problem here will be the Thomas H. Lee 's holdings, rumor on the street was that the TH Lee buyout was done around the $1.2-1.3B range, and as of today, the market cap of RFX is $1.9B. So if the potential for RFX to drop another 50% (to $8), then TH Lee would technically lose money on the original buyout. I would imagine that if the law suits starts to get threatening, TH Lee will just sell their stake (and consequently, Refco as an entity) to a financial institution. Buyout funds are not known for their patience with a losing stake. It won't be at a premium, however, that would sting, certainly.
Let's see here. If Refco had bad receivables and wanted to avoid realizing the writedowns, it had to either factor it above its market value or transfer it to a more creditworthy entity. Either option is uneconomic to the party who assumes the receivables so Refco would have to make a compensatory payment to the party. I suppose this payment is the $430mm that Bennet is returning. So, although it is getting $430mm of cash which is a good thing, one wonders what the writedowns on the receivables need to be. More importantly, a company that tried to fool investors into paying up for it so it's managers could cash out should be treated with caution. You know what they say about fool me once and fool me twice.
The fact that Refco won't explain exactly what happened is, in itself, the material issue. I've seen frauds unold first hand. When a company reaches the point mentioned above, the cow is already out of the barn, so to speak. It's too late for Refco to close the door.
And this just got worse, see the latest press release from Refco: http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/10-11-2005/0004165909&EDATE= What is troubling is that this shows this is not just one transaction, but rather a continuous sequence of transactions. " .... as far back as at least 1998. These obligations were transferred periodically to the entity controlled by Mr. Bennett, and the Company's books and records then reflected a receivable from that entity, rather than a receivable from the originating accounts. The fact that the receivable was from a company controlled by Mr. Bennett was hidden at the end of quarterly and annual reporting periods by reason of transfers to a third party customer account that we currently believe is unaffiliated with Mr. Bennett or anyone else at the Company. ...." Wow, a pattern of behavior, SEC is going to have a field day.
Makes you also wonder who was doing the due dillegence for Thomas H. Lee. Top notch private equity firms should not seen this.......
Thomas H. Lee and Scott Schoen has always been known as quite trusting, in the first place. THLee is the anti-KKR, if you will. They will only do buyouts on firms that want to be bought out. However, the disclosures made it look like that this is a "regular" shifting of uncollectible receivables, rather than having to write them off, would shift to an external entity to pad the bottom line, so I am surprised that no one caught it before the IPO. Expect class action law suits against the underwriters as well. Problem with this arrangement is that this remind me of ... *shudder* ... MCI Worldcom, when MCI was booking regular expenditures as capital investments to pad the bottom line. Naturally, hopefully that Refco is a stronger company than MCI, but it is also substantially smaller, which raises the buy-out possibility more.
I know nothing about the finances of this company but I do know 2 things; 1) The sun tomorrow will rise in the east 2) There will be far more to come out of this company before the matter is over. Tip of the iceberg, it always is.........