Refco Stiffing Its Customers

Discussion in 'Wall St. News' started by Cdntrader, Nov 3, 2005.


    Bail call.
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    October 29, 2005 -- Lawyers for collapsed futures trading giant Refco Inc. are trying to treat investors' cash and investments as debt that doesn't need to be immediately returned to the bankrupt firm's customers.
    Instead of classifying the cash and investments as client property and returning them as soon as possible, investors with accounts at Refco Capital Markets might have to settle for around 40 cents on the dollar — the same as if they had lent the firm that cash.

    Refco's lawyers made the motion at a meeting with creditors yesterday.

    Meantime, Refco's disgraced chief Phillip Bennett was scrambling to find six people to guarantee the $50 million bail set after he was arrested on securities fraud charges.

    His lawyer, Gary Naftalis, said Bennett had put up $5 million in cash and $16 million in real estate, but that his former colleagues and friends were reluctant to guarantee the bond given the case's high profile.

    "This is a man who sold $200 million in stock in August," said David Esseks, the U.S. attorney prosecuting Bennett. "The money has got to be somewhere."

    U.S. Magistrate Judge Frank Maas ordered Bennett to produce a sworn financial statement by Tues. Nov. 1, and will likely rule on his lawyer's bond reduction motion shortly after that.

    Yesterday's motion wasn't the first time Refco clients' funds have become an issue.

    Earlier this week, hedge fund pioneer Jim Rogers and another Refco client, Inter Financial Services Ltd., sued the firm seeking return of about $520 million. Rogers' fund has about $340 million tied up in Refco.

    J. Gregory Milmoe, a lawyer for Refco's bankruptcy attorney Skadden, Arps, told creditors that the matter might have to be decided by a U.S. bankruptcy court judge.

    But even if the court rules that Refco's client capital was for investment purposes, there is still about $16 billion in debt that has to be paid off, and much of that is either guaranteed at the regulated futures trading subsidiary or secured by the firm's assets.

    "Any way you look at this, many of the Refco Capital Markets clients are going to have to take some [loss] on their positions," said an investor in Refco's junk bonds. "There are no hard assets to be sold, and the cash from the sale of the units is going to go to pay down bondholders," he said.

    Refco's initial public offering underwriters Goldman Sachs, Credit Suisse First Boston and Bank of America Securities are staring at a combined $190 million in liability, according to a research report from S.C. Bernstein analyst Brad Hintz.
  2. thruline


  3. Those executives better be looking over one shoulder for the rest their lives if that happens. Scumbags.

    So is the wave of the future gonna be that a customer better buy debt in the brokerage firm they have assets at? They better if they wish to protect themselves...unreal.

    On the plus side no more annoying full page adds in "trader monthly".....:mad:
  4. I'm curious - and forgive me if this question is completely dumb, as I simply do not know enough about it.

    But as I trade with Oanda (whom I have had no issues with whatsoever) I always wonder what would happen to my money were something to happen to the company. It says the account is FDIC insured. So does that mean if the company crashed like Refco did, the money would be insured so long as it was under $100,000?

    Sorry if the question is a dumb one.
  5. mokwit


    Just plain stealing. In the UK the judge would order them to be tarred and feathered.
  6. makes me nervous about IB, whats to stop the same from happening there?
  7. FDIC insurance means NOTHING in the world of Equities and Comodies.

    If your broker becomes insolvent, then your screwed.

    In equities, their is SIPC insurance through.
  8. So SIPC does mean something then?
  9. best of luck to anyone with this exposure
    this bs shouldnt have happened
  10. SIPC covers up to $500,000 total loss (equities and cash combined), but only up to $100,000 in cash.
    #10     Nov 3, 2005