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http://www.freerepublic.com/focus/f-news/1502886/posts

World's hedge funds face crisis as Refco suspends trading
The Guardian (UK) ^ | Oct 14, 2005 | Jill Treanor

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.