Posted on 10/13/2005 10:13:33 AM PDT by HAL9000
NEW YORK (AP) -- Refco Inc., the commodities broker mired in an accounting scandal in which its chief executive hid bad debts from shareholders and regulators, said Thursday it will freeze customers' accounts in one of its subsidiaries for 15 days because it may not have enough cash on hand to operate normally.Refco Capital Markets Ltd., an offshore broker for stocks, bonds and currencies, is the subsidiary that former CEO Phillip Bennett, 57, allegedly used to help hide up to $545 million in bad debts. Bennett was indicted on federal charges Wednesday that he caused Refco to file fraudulent statements to securities regulators. He is free on a $50 million bond.
In a statement, Refco said it would put a 15-day moratorium on all transactions -- effectively preventing customers from withdrawing money from their accounts -- "to protect the value of the enterprise."
A spokesman for Refco did not immediately know how many accounts or how much money would be frozen.
Other subsidiaries have enough liquidity to remain operating normally, the company said. Those regulated subsidiaries deal in futures commissions, derivatives and commodities.
The capital markets subsidiary is at the center of the accounting troubles at Refco. Bennett is accused of moving uncollectable debts in and out of that subsidiary, and other entities, to hide the fact that the company was counting debts as revenues, even though it realistically was unlikely to collect on those debts.
Refco announced the irregularities on Monday, placing Bennett on leave after he repaid $430 million with interest to the company. Santo Maggio, head of Refco Capital Markets Ltd. and Refco Securities LLC, also was placed on leave.
Shares of Refco fell $2.95, or 27 percent, to $7.90 in midday trading on the New York Stock Exchange. The company first went public in August, and federal prosecutors said Bennett's alleged transactions hid the true value of the company from investors, who have seen their shares tumble from more than $28 per share at Friday's close.
The company has said that its earnings reports dating back to 2002 are unreliable.
The company also said it has retained former Securities and Exchange Commission Chairman Arthur Levitt and Eugene Ludwig, CEO of Promontory Financial Group LLC, as special advisers to the board of directors.
Ruh-Roh! Let me check...nope...never heard of 'em. I guess my money's safe for now.
They were Hillary's cattle broker. Really.
I smell Soros
Refco is very VERY small potatoes, and might not even meet Soros' *own* credit standards.
OTOH, Refco is well-known for cutting ethical corners....
These guys deserve everything they get. And more.
Refco Halts Client Withdrawals, Cash Isn't Sufficient (Update2)
Oct. 13 (Bloomberg) -- Refco Inc., reeling from the disclosure that its chief executive officer hid unpaid debts, blocked clients from withdrawing funds and said one of its units doesn't have enough liquidity to keep doing business.
Refco, the biggest independent U.S. futures broker, named Arthur Levitt, former chairman of the Securities and Exchange Commission, and Eugene A. Ludwig, formerly U.S. Comptroller of the Currency, as special advisers to the board. It also hired Goldman Sachs Group Inc. as financial adviser.
The New York-based firm imposed a 15-day moratorium on withdrawals from Refco Capital Markets Ltd. and said the unit, ``which represents a material portion of the business of the Company, is no longer sufficient to continue operations.'' The company said activities at its regulated futures brokerage were unaffected.
The announcement came a day after U.S. authorities arrested Phillip Bennett, CEO until he was suspended by the company Oct. 10, and charged him with securities fraud. Bennett, 57, hid $430 million in unpaid debts dating to 1998, Refco said, adding that its accounts for the past three years couldn't be relied on.
Refco had $4.9 billion in customer accounts on Aug. 31, making it the eighth-biggest futures broker by that measure after banks such as Goldman and Citigroup Inc.
Trading of Refco stock was halted today prior to the announcement. The shares fell to $7.90 before markets opened from $10.85 yesterday, a decline of almost 75 percent from Oct. 7, the last trading day before Bennett's role in the alleged fraud was disclosed.
Criminal Complaint
Bennett and unidentified accomplices ``hid from investors and regulators hundreds of millions of dollars that one of Bennett's companies owed to Refco,'' U.S. Attorney Michael Garci said yesterday. Bennett may have helped Refco appear more financially sound as it and underwriters including Credit Suisse First Boston prepared for a $583 million initial public offering in August. Bennett faces life in prison if convicted.
A six-page criminal complaint against Bennett, who made $145 million from the IPO, lays out a scheme that the government claims began at least as early as 2004 and continued through this month.
According to U.S. officials, Bennett used loans as large as $545 million to a customer to conceal debt owed to Refco by a separate company that he controlled, Refco Group Holdings Inc.
Standard & Poor's and Moody's Investors Service both lowered their ratings on Refco's debt this week and said they were considering further downgrades.
I think I should not have posted from Bloomberg. Better pull my last.
Couldn't happen to a nicer guy. Maybe Sandy will be in the next cell.
Berger or Weill?
Need a scorecard for all the Sandys!
And for all the felons at Refco!!
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