Posted on 10/14/2005 11:30:39 PM PDT by Travis McGee
World's hedge funds face crisis as Refco suspends trading
· Leading global broker admits 'liquidity problem'
· Billions of pounds could be tied up in frozen deals
Jill Treanor
Friday October 14, 2005
A crisis in the world's hedge fund industry was in prospect last night after one of the world's largest derivatives brokers was forced to freeze trades potentially worth billions of pounds.
The move by Refco, which acts for many leading speculative investors both on Wall Street and in the City, followed the discovery of accounts irregularities at the firm earlier this week and the issue of fraud charges against its former chief executive Phillip Bennett.
Mr Bennett has been charged with defrauding investors by using a hedge fund to hide $430m (£250m) of debts owed to the firm. A British banker who has lived in the US since 1978, Mr Bennett has been released on bail of $50m secured on a house in New Jersey, a Park Avenue penthouse apartment, $5m in cash and funds raised by six co-signers of the bail bond.
The implications of the 15-day trading moratorium on the company's Refco Capital Markets subsidiary may be felt across the world financial system, depending upon the size of the funds caught up inside Refco and the types of institutions which are unable to remove their money from the operation. By locking the clients in, Refco, which has debts of $642m, is preventing a possible mass exodus of funds which could further jeopardise its trading position. While the company gave no details of the size of the funds it had tied up in its capital markets arm, it described the operation as representing a "material portion" of its business.
The rest of the article linked HERE.
The start supposedly happened in the mid 90's. Victor Niederhoffer blew up his hedge fund and when they saw they could hide his losses, it probably got addictive.
Bennet fooled Hill Partners, Grant-Thornton, Goldman, Credit Suisse and Bank of America, and some combination of various exchanges, the NFA and the CFTC.
Yup. The only guys who knew were Bennet, Grant and Maggio, IMHO.
Could well be.
It should be noted that Niederhoffer has been the object of current speculation that he was the customer behind the current $400 million mess. He has flatly denied it as a comprehensive settlement of all issues save one minor one between himself and Refco was reached long ago.
Victor Niederhoffer ... ever read the Malcolm Gladwell "New Yorker" article about him?
http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm
http://www.gladwell.com/archive.html
OK You are right and I was wrong
THanks
If he was behind $400 million in losses, Refco would have shut down in 1997. I'm sure he was a chunk of it though.
Not yet, but I will. Thanks!
LOL. So was the Investment Company act of 1934. So was the Federal Reserve Act. So was the SEC. So was the NASD. LOL. Need I go on?
Sorry big guy. You are wrong on this one. This whole thing was nothing of the kind.
apparently refco debt is greatly discounted now as well, trading fairly near 'certain bankruptcy' range on friday from what i heard. It isn't my market, but it IS the only refco-related item still trading.
From about 45 minutes ago:
NEW YORK, Oct 16 (Reuters) - An investor group led by private equity firm JC Flowers & Co is in the lead to buy Refco Inc's (RFX.N: Quote, Profile, Research) futures business, a source familiar with the matter said on Sunday, as Refco's advisers met for the second day to salvage the troubled firm.
< snip >
My guess is that the futures biz gets sold and the holding company and 2 shut-down divisions go into bankruptcy before midnight.
Further update, 5 potential buyers:
Flowers emerged as a front-running bidder for Refco's unit that deals in exchange-traded futures after a weekend of negotiations led by Goldman, said the people, who asked not to be identified because they're not authorized to comment. Man Group Plc, Societe Generale's Fimat Group, Citigroup Inc. and JPMorgan Chase & Co. also were involved in the talks, they said
< snip >
You're right. The retail futures business is one asset that Refco has that is worth something. It will be sold. (Since my account is there I would like some resolution soon.). The rest of it will be sorted out. I don't think Refco was such a huge player that any contra trades will create risk on the system. I could be wrong.
My deal-by-midnight guess was wrong. Apparently they're not concerned with the new bankrupty law (went into effect at midnight), or perhaps unable to get whatever due diligence done, or perhaps the deal is just too complex to get it ironed out in 2 days.
Man Financial says it's not interested in "Refco" but that doesn't really rule out a deal for only Refco, LLC, the futures division.
Goldman apparently turned down a $1 billion offer from Abadi & Co. Whether that was for the whole thing or just the futures division is unclear. Abadi says he'll sue if Flowers gets it.
The wheels are still turning and the CFTC and the NFA and the CME have to be getting impatient, so expect a sale of the block of futures customer accounts soon.
NEW YORK, Oct 17 (Reuters) - Embattled futures and commodities brokerage Refco Inc. (RFX.N: Quote, Profile, Research) said on Monday it was in advanced discussions with an investment group led by J.C. Flowers & Co. over the sale of its futures brokerage business.
Refco said it expects to reach a memorandum of understanding with the group shortly, but said there can be no assurance that an agreement will ultimately be reached.
This will be a good week to watch all markets closely.
The grabbing hands
Grab all they can
All for themselves
After all
It’s a competitive world
Everything counts in large amounts
The graph
On the wall
Tells the story
Of it all
Picture it now
See just how
The lies and deceit
Gained a little more power
Confidence
Taken in
By a sun tan
And a grin
NEW YORK, Oct 17 (Reuters) - Refco Inc's (RFX.N: Quote, Profile, Research) regulated futures brokerage is expected to file for bankruptcy protection imminently, a source familiar with the matter said on Monday.
Investment bank Greenhill & Co (GHL.N: Quote, Profile, Research) will run an auction for the futures brokerage after the bankruptcy filing the source said. Investment fund J.C. Flowers remains the leading bidder for the unit
< snip >
NEW YORK, Oct 17 (Reuters) - Troubled commodities brokerage Refco Inc. (RFX.N: Quote, Profile, Research) said on Monday it had filed for bankruptcy protection as it struck a deal to sell its core futures brokerage business to a group of private equity investors for $768 million.
New York-based Refco said it and certain subsidiaries filed for bankruptcy protection on Monday as part of the memorandum of understanding with investors.
None of Refco's regulated subsidiaries -- its futures brokerage business, which is conducted through Refco LLC, Refco Overseas Ltd. and Refco Singapore Ltd, and its broker-dealer, Refco Securities LLC -- filed for bankruptcy protection, it said.
< snip >
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