REFCO STIFFING ITS CUSTOMERS By RODDY BOYD -------------------------------------------------------------------------------- PHILLIP BENNETT Bail call. Photo: AP Email Archives Print Reprint 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 â 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.