The Real REFCO Villians: No Mention of Niederhoffer!!

Discussion in 'Wall St. News' started by CPTrader, Oct 31, 2005.

  1. Very insightful article.



    Refco Bad Debts Started With Asian Currency Crisis, People Say

    Oct. 31 (Bloomberg) -- Refco Inc. racked up most of the losses that led to its collapse from companies crippled by the Southeast Asia economic crisis that began in 1997, people with knowledge of the matter said.

    An internal probe of Refco's failure found that by 2000 eight companies in the region owed it about $300 million, said one of the people, who declined to be identified because the investigation isn't public. At least a third of that amount came from Repco Holdings Bhd., a Malaysian gambling and lumber company, the people said.

    Refco was the biggest independent U.S. futures broker until it sought bankruptcy protection on Oct. 17, a week after disclosing that former Chief Executive Officer Phillip Bennett covered up $430 million of bad debts that dated back to 1998. New York-based Refco hasn't disclosed the origin of those losses.

    ``During the Asian crisis, we were very concerned that big investors could leave a firm like Refco holding the bag,'' said Michael Greenberger, a law professor who led the trading and markets unit of the Commodity Futures Trading Commission, a U.S. regulator of Refco, from 1997 to 1999. ``It sounds like Bennett may have avoided all that by covering those loans himself.''

    Refco said in an Oct. 11 statement that Bennett, 57, hid debts that the company was owed by shifting them to a separate entity he controlled. Most of the receivables were uncollectible, the company said.

    Slumping Stock

    By assuming debts that Refco was unable to collect, Bennett kept the company from having to account for them as losses. U.S. Attorney Michael Garcia, who's pursuing the criminal case against Bennett, said Oct. 12 that the cover-up deceived investors who bought $583 million of stock in Refco's Aug. 5 initial public offering.

    Refco sold shares to the public at $22 each and they reached a high of $30.55 on Sept. 7. They closed at $1.12 on Oct. 28. The stock has been delisted from the New York Stock Exchange.

    Refco plans to sell assets on Nov. 9 in a court-supervised auction. At least seven companies, including Merrill Lynch & Co. in New York and Interactive Brokers Group LLC of Greenwich, Connecticut, have shown an interest in acquiring all or part of the company.

    Bennett was arrested on Oct. 11 and charged the next day with securities fraud in Manhattan federal court. Bennett ``received no personal profits from this indebtedness'' and prosecutors handling the case ``jumped the gun'' by arresting him before conducting a full investigation, said his lawyer, Gary Naftalis, at a court hearing on Oct. 12.

    Collapse of Repco

    Bennett repaid the $430 million of debts on Oct. 10, the same day that he was removed as chairman and CEO.

    Naftalis declined to comment on the origin of Refco's losses, as did Sandra Sternberg, a company spokeswoman, citing the ongoing investigation.

    Some of Refco's losses stemmed from Repco Holdings, a company in Kota Kinabalu, the port capital of the forest-covered state of Sabah, that operated betting pools at a horseracing track, extracted and marketed timber, blended brake fluid and sold auto parts, people familiar with the matter said.

    Shares of Repco Holdings reached a record 140.5 ringgit on Sept. 9, 1997, an amount then equivalent to $48.18. By January 1998, the stock had plummeted to less than 20 ringgit, or about $5, a victim of the economic slowdown and currency devaluations that swept Southeast Asia.

    Concealed Debts

    Trading in Repco Holdings was halted the following year and Malaysia appointed an administrator to take control of the company. The stock was delisted from the Kuala Lumpur Stock Exchange in 2003.

    Refco owned 8.5 percent of Repco Holdings as of November 1998. By October 2001, the stake had risen to 13 percent and the 2002 Repco Holdings annual report lists Refco as the company's second-largest shareholder.

    The investigation is still trying to determine how Refco ended up with debt from Repco Holdings, people familiar with the probe said. Sternberg, the Refco spokeswoman, declined to comment.

    ``I never had any accounts with Refco,'' said Low Thiam Hock, 43, former chairman of Repco Holdings, in an interview in Kuala Lampur. ``Any losses or debts from Refco have nothing to do with me.'' Low has pleaded not guilty to allegations that he illegally tried to prop up shares of Repco Holdings.

    In addition to Repco Holdings, Bennett concealed debts from Devonshire Strategic Holdings, RGF Ltd., Kipler Investments, Hazelhurst Investments, Helford Resources, East Client Services Ltd. and an entity listed as Luhur, said one person with direct knowledge of Refco's investigation. From 1998 to about 2000, the debts they owed to Refco were assumed by Bennett's company, this person said.

    Efforts to locate the firms other than Repco Holdings were unsuccessful. A company called Helford Resources Ltd. was declared defunct in New Zealand in 2003, according government records there.

    To contact the reporter on this story: Otis Bilodeau in
    Washington at

    Last Updated: October 31, 2005 06:22 EST

  2. got a better 1, almost died reading it and i'm only half-way thru....
  3. dont


    What a story and I can't raise 1mm

    :confused: :mad:
  4. life's unfair mate...
  5. The money raising business is all fluff. If you are good salesperson, and can spin a good story and have or can create "pedigree", you can raise all the money you want!!
    The sad truth i sthat all the so-called sophisticate dinveestors only chase past performance and/or pedigree.

    Understanding a strategy's logic, or risk managemnt principles, is not pursued.

    Attend a few conferences and you wil be amazed at the lack of true market expertise by so-called pros who control billions of assets!
  6. yeah sure i keep bumping into people that raise that sort of money :)))) now seriously u shld read it, thats oscar material!
  7. yeah, they're a piece of work, them dinvestors.

    repeat after me: "it doesn't matter who racked up the debt. what matters is the CEO tried to bury."
    repeat until you get it.
  8. cable


    Hey, I just made up a new investment word based on his typo: divestors, from the word divest (to deprive, take away possessions from someone, to strip away). There are "divestors" and "divestees", and these villains are definitely "divestors". And 95% of traders are currently "divesting" their assets into the hands of the 5%.