Refco Account Security

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Oldtrader, I believe that yesterday’s Wall Street Journal vindicates and proves correct the arguments I made in our debate on this thread. WSJ confirms that Refco’s hidden +$400 million receivable was indeed, just as I suspected, the result of lax risk management resulting in customer trading losses in Refco, L.LC., the futures broker, not its parent holding company. These losses were transferred to the parent company as part of a scheme to hide them. You are a respected contributor on ET, so that if you would reconsider and retract your endorsements of Apex Capital’s arguments, you might help others avoid financial ruin.

Quote from Apex Capital:

Agreed.
The segregated accounts can indeed be pooled together in order to meet the obligation (debt) of a very large trading blowup.
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Quote from zdreq:

dude -- and its only taken you until the 50th page on this thread to acknowledge this 'minor' risk at Refco LLC??! :-))))))))))))
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Quote from oldtrader:

Perhaps it's on the 50th page because it wasn't the problem at Refco. The problem did not have to do with trading losses. It had to do with fraud at the holding company level.

There are all kinds of risks pertaining to futures trading....but not all are applicable in this particular situation.
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Quote from oldtrader:

There doesn't appear to be any customers at Refco with large losses that could create a problem for the other customers. This is primarily a problem at the Holding company level as I understand it, not one that concerns the regulated futures accounts.
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Quote from oldtrader, addressed to Apex Capital:

Thanks for the numerous informative posts both here and in other threads regarding the Refco situation. Good to see that at least someone pays attention to facts...a rare quality these days.
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Quote from oldtrader:

Now, here's a fact: segregated funds in a futures account can be used to offset a large loss from a single customer. But in this case we do not know that it applies. Therefore, it is not a fact in this particular case.
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Quote from jimrockford on Oct. 15, 2005:

I would also submit that there is no basis for your view that this fraud had nothing to do with trading losses. We don't know what happened or why it happened. Students of fraud know that frauds often result from losses incurred in trading or other business activity. Most people would not ordinarily commit fraud, but when they are faced with trading or business failures, fraud often becomes a last resort to conceal failure. If they are lucky, this buys them time, until a bad trade moves favorably, or a business recovers, the loss can be repaired, and the secretly "borrowed" funds returned. But sometimes, bad trades become worse trades, so that the money can never be returned. Remember Barings Bank, for example? If this fraud had its origins in the need to conceal huge trading losses in the futures brokerage, or if this company controls trading risks no more effectively than it safeguards against embezzlement of segregated customer funds (for which the Refco futures brokerage Refco, L.L.C. was fined years ago by the CFTC), then segregated customer funds could be seized to cover losses from trading or embezzlement.
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Quote from oldtrader:

It seems that you have the propensity of jumping to conclusions. You've done it here, and you've done it the other thread as well. *** you are jumping to a lot of conclusions on the entire Refco situation. And I think that's the point: some of your conclusions are unsupported by "facts", but are based on mere "supposition" on your part.
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Quote from Oct 21, 2005 Wall Street Journal as supplied by range:

October 21, 2005

Refco's Debts Started With Several Clients
Bennett Secretly Intervened To Assume Some Obligations;
Return of Victor Niederhoffer

By DEBORAH SOLOMON, CARRICK MOLLENKAMP, PETER A. MCKAY and JONATHAN WEIL
Staff Reporters of THE WALL STREET JOURNAL

The $430 million in bad debts at the heart of Refco Inc.'s meltdown stemmed from losses by multiple customers, including money manager Victor Niederhoffer, whose hedge fund suffered heavy losses during the 1997 Asian financial crisis, according to people familiar with the matter.

***

The futures brokerage's financial problems may also extend beyond the $430 million, a person familiar with the matter said. This person cautioned that it is too early to gauge the extent of those problems, but that it appeared Refco executives also had manipulated other financial metrics.

***

According to a person familiar with the matter, Refco may have allowed some financially weak customers to take on overly risky positions. While the mechanics of the trades remain unclear, at least some of the customers' problems were tied to margin loans.

Investigators also have turned up evidence that more than one hedge fund was used to help Mr. Bennett hide Refco's losses. Last week, a Summitt, N.J., hedge fund, Liberty Corner Capital Strategy LLC was reported to have been used by Mr. Bennett to conceal the debts. Yesterday, Liberty Corner said it had been told it wasn't the target of the criminal investigation into Refco and that it plans to take legal action against Refco over the matter.

Separately, former SEC Chairman Arthur Levitt said he no longer is an outside adviser to Refco. Refco on Oct. 13 announced it had retained Mr. Levitt and former U.S. Comptroller of the Currency Eugene A. Ludwig as special advisers to its board of directors.

***
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Lets change the direction of this debate...the Flowers bid is a done deal and the IB bid will never be excepted due to the massive differences between the two companies - even if they raise their offer.

Money has started to flow back into Refco over the past two days and banks/brokages are claiming trades from Refco again which in turn means normal service can be offered. The accounts who wanted their money back have now taken it and opened new accounts with the Fimat etc of this world. Maybe these guys would have gone anyway with the CIS/Refco take over which they may have been unsure of.

So..if the big boys are starting to play again why not the little fish which live on this ET site?

IF the outflow of money has stopped and money is on the way back in to Refco,
what would it take to get people to trade with Refco again?

Just a few thoughts..
 
Quote from iza:

Lets change the direction of this debate
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Actually... let's not.

I was wondering about Apex and the others whose ridiculing of those who voiced their concerns continued even as the latest facts came to light. It now seems clear that a lot of the things that these posters said would/could never happen are actually happening. It's a credibility issue. At first I was with those who said that hell will freeze over before anyone loses money out of a segregated account. I still want to believe it but I don't know for sure. As a trader with a comparatively small account, the outcome of this episode is of extreme interest to me.

I'm not sure that it's time yet to move on from the dissection of what has actually happened at Refco.

Perhaps you can start a new thread if you want to pursue a new line of debate. Maybe you could call it 'Return to Refco?' or something like that. I for one am interested in the responses that may or may not be engendered by jimrockford's last post.
 
Quote from traderNik:

Actually... let's not.

I was wondering about Apex and the others whose ridiculing of those who voiced their concerns continued even as the latest facts came to light. It now seems clear that a lot of the things that these posters said would/could never happen are actually happening. It's a credibility issue. At first I was with those who said that hell will freeze over before anyone loses money out of a segregated account. I still want to believe it but I don't know for sure. As a trader with a comparatively small account, the outcome of this episode is of extreme interest to me.

I'm not sure that it's time yet to move on from the dissection of what has actually happened at Refco.

Perhaps you can start a new thread if you want to pursue a new line of debate. Maybe you could call it 'Return to Refco?' or something like that. I for one am interested in the responses that may or may not be engendered by jimrockford's last post.
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It sure isn't time and it isn't anywhere near over. You can read that complaint on the internet in less than 1 minute. It's 6 pages long - near real time prosecution of white collar crime some commentators have said - something spit out fast to pop the CEO before he could flee the country.

Wait till we see the behemoth that's coming once the investigation is done. Refco was dirty. Had been for a long time. That's going to be the real story here.

Also, they only had to list their 15 largest creditors to file, I think. They still have to list them all very soon. That will be interesting.
 
The fifty largest creditors are on this filing http://bankrupt.com/refco.txt


-----------------------------------------------------------------
[00005] LIST OF REFCO'S 50 LARGEST UNSECURED CREDITORS
-----------------------------------------------------------------

Entity Claim Amount
------ ------------
Bawag International Finance $451,158,506
BAWAG P.S.K.
Bank fur Arbeit und Wirtschaft und
Osterreichische Postsparkasse
Aktiengesellschaft Sietzergasse 2-4 A-1010
Vienna, Austria
P: +43/1/534 53/3 12 10
F: +43/1/534 53/ 2284

Wells Fargo $390,000,000
Corporate Trust Services
Mac N9303-120
Sixth & Marquette
Minneapolis, MN 55497
P: 612-3 16-47727
Attn: Julie J. Becker

VR Global Partners, LP $380,149,056
Avora Business Park
77 SADOVNICHESKAYA NAB. BLDG. 1
Moscow, Russia 115035

Rogers Raw Materials Fund $287,436,182
C/O Beeland Management
141 West Jackson Blvd., Suite 1340
Chicago, IL 60604
P: (312) 264-4375

Bancafe International Bank Ltd $176,006,738
Carrera 11 82-76
Segundo 2
Bogota, Colombia
P: 636-4349

- and -

Bancafe International Bank Ltd
801 Brickell Ave. Ph1
Miami, FL 33131
P: 305-372-9909
F: 305-372-1797

Markwood Investments $110,056,725
Via Lovanio
#19 00198
Rome, Italy

Capital Management Select Fund $109,009,282
Lynford Manor, Lynford Cay
Nassau, Bahamas

Leuthold Funds Inc $107,264,868
Leuthold Industrial Metals, LP
100 North 6th Street Suite 412A
Minneapolis, MN 55403
P: 612-332-9141
F: 612-332-0797
Attn: David Cragg

Rietumu Banka $100,860,048
JSC Rietumu Banka
Reg. No. 40003074497
VAT No. LV40003074497
54 Brivibas str
Riga, LV-1011 LATVIA
P: +371-7025555
F: +371-7025588

Cosmorex Ltd $91,393,820
CP 8057 28080
Madrid, Spain
P: +34-607-745-555
F: +34-667-706-622

BCO Hipotecario Inv. Turistic $85,807,030
(Fidelicomiso Federal Forex Invest)
Av Venezuela
Torre Cremerca, Piso 2
Ofici B2 El Rosal
Caracas, VENEZUELA

VR ARGENTINA RECOVERY FUND $77,710,311
Avrora Business Park
77 Sadovnicheskayanab BLDG 1
Moscow, 115035 Russia

Rogers International Raw Materials $75,213,814
c/o Beeland Management
141 West Jackson Blvd., Ste. 1340
Chicago IL 60604
P: (312) 264-4375

Creative Finance Limited $65,111,071
Marcy Building, Purcell Estate
P.O. Box 2416
Road Town, British Virgin Islands

Cargill $67,000,000
PO Box 9300
Minneapolis, MN 55440-9300
P: (952) 742-7575
F: (952) 742-7393

JWH Global Trust $50,576,912
c/o Refco Commodity Management Inc.
One World Financial Center
200 West Liberty St., 22nd Floor
New York, NY 10281

RB Securities Limited $50,661,064
54 Brivibas Street
LV-1011 Riga, Lativa
P: + 371 702-52-84
F: + 371 702-52-26

PREMIER TRUST CUSTODY $49,365,415
ABRAHAM DE VEERSTRAAT 7-A
CURACAO, NETHERLANDS ANTILLES

London & Amsterdam Trust Company $47,560,980
PO Box 10459 APO
3rd Floor
Century Yard
Cricket Square, Elgin Ave.
Grand Cayman, Cayman Island

Stilton International Holdings
Trident Chambers, Wickhams Cay
P.O. Box 146
Road Town, British Virgin Islands $46,820,415

Refco Advantage Multi-Manager Fund Futures Series $41,713,723
c/o Refco Alternative Investments Group
One World Financial Center
200 West Liberty St., 22nd Floor
New York, NY 10281

Banesco Ny Banesco Banco Universal C.A. $39,596,609
Av Urdaneta, Esquina El Chorre, Torre Untbanca
Caracas Venezuela

Josefina Franco Sillier $32,862,419
Carretera Mexico-Toluca No. 4000
Col. Cuajimalpa D.R. 0500 Mexico

Rovida $32,831,461
London & Amsterdam Trust Company
PO Box 10459 APO
3rd Floor
Century Yard, Cricket Sq.

Caja S.A. $30,950,115
Sarmiento 299 1 Subsuelo (1353)
Buenos Aires, Argentina
P: (54 11) 4317-8900
F: (54 11) 4317-8909

Global Management Worldwide $28,976,612
Trident Corp.
Service Floor 1
Kings Court Bay St.
PO Box 3944
Nassau, Bahamas

Abadi & Co. Securities $28,046,904
375 Park Avenue, Suite 3301
New York, NY 10152
P: (212) 319 -4135

Refco Winton Diversified Futures Fund $27,226,697
c/o Refco Global Finance
One World Financial Center
200 West Liberty Street, 22nd Floor
New York, NY 10281

Pioneer Futures, Inc. $25,932,000
One North End Ave., Suite 1251
New York, NY 10282

Daichi Commodities CO., LTD. $24,894,833
10-10 Shinsen Cho, Shibuya-Ku
Tokyo, I5O-0045 JAPAN

GS Jenkins Portfolio LLC. $24,631,959
c/o Refco Capital Markets
One World Financial Center
200 West Liberty Street, 22nd Floor
New York, NY 10281

Winchester Preservation $23,349,765
c/o Joseph D, Freney
Christiana Bank & Trust Co.
3801 Kennett Pike, Suite 200
Greenville, DE 19807

BANCO AGRI BANCO AGRICOLA (PANAMA) S.A. $22,314,386
EDIFICIO GLOBAL BANK
#17, LOCAL F, CALLE 50 PANAMA, PA

- and -

BANCO AGRICOLA, S.A.
1RA. CAKKE PTE. Y 67 AV. NORTE
FINAL BLVD CONSTITUCION #100
SAN SALVADOR, ES

Peak Partners Offshore Master Fund Limited $22,205,344
PO Box 2199
GT Grand Pavilion Commercial Center
802 West Bay Road
Grand Cayman, Cayman Islands

Arbat Equity Arbitrage Fund $19,106,989
Trident Corporate Services
1st Floor Kings Court
Bay Street
P.O. Box N3944
Nassau, Bahamas

Renaissance Securities (Cyprus) Ltd. $17,820,709
2-4 Arch Makarios
111 Avenue Capital Center, 9th Floor
1505 Nicosia Cyprus

AQR Absolute Return $17,482,100
c/o Caledonian Bank & Trust LTD
PO Box 1043
GT Caledonian House
Grand Cayman, Cayman Islands

Geshoa Fund $17,319,494
CORPORATE CENTER
WEST BAY ROAD
PO BOX 31106 SMB
GRAND CAYMAN

RK Consulting $14,074,345
7, Kountouriotou Street
14563 Kifissia
Greece

VR Capital Group Ltd. $13,690,549
AVRORA BUSINESS PARK
CALENDONIAN HOUSE MARY STREET
NAB 77 BLDG 1
MOSCOW RUSSIA 115035
P: +358 600 41 902

GTC Bank, INC. $12,971,439
CALLE 55 ESTE
TORRE WORLD TRADE CENTER
PISO 7
PANAMA GUATEMALA
P: (507) 265-7371
F: (507) 265-7396

Inversiones Concambi $12,799,137
C/O AEROCAV 1029
P.O. BOX 02-5304
MIAMI, PL 33102

Miura Financial Services $12,150,213
AV. FRANCISCO DE MIRANDA
TORRE LA
PRIMERA PISO 3
CARACAS VENEZUELA

NKB Investments LTD $11,699,430
199 ARCH MAKARIOS AVE
196 Makarios III Avenue
Ariel Corner 3rd Floor
Office 301 3030
Limassol CYPRUS

Tokyo Forex Financial Inc $11,689,354
Shinjyuku Oak Tower, 35th Floor
6-8-1 Nishishinjyuku
Shinjyuku-Ku, Tokyo JAPAN

Birmingham Merchant S.A. $11,215,413
AV. ARGENTINA 4793
PISO 3
CALLAO PERU

BAC International $10,906,506
CALLE 43 QNQUILLO DE LAGUAR
PANAMA
P: (507) 265-8289
F: 507-205-4031

Total Bank $10,657,732
CALLE GUAICAIPURO ENTRE
AV.PRINCIPALDE
IAS MERCEDES
TORRE ALIANZA PISO 9
EL ROSAL, CAACAS, VENEZUELA
P: (0212) 264.72.54/49.42
F: (0212) 266.58.12

Reserve Invest (Cypress) Limited $10,499,733
MAXIMOS PLAZA
3301 BLOCK 3
3035 LIMASSOL
CYPRUS

Refco Commodity Futures Fund $10,166,045
c/o Refco Alternative Investments Group
One World Financial Center
200 Liberty Street, 22nd Floor
New York, New York 10281
P: 877 538 8820
F: 877 229 0005
 
Quote from traderNik:

Actually... let's not.

I was wondering about Apex and the others whose ridiculing of those who voiced their concerns continued even as the latest facts came to light. It now seems clear that a lot of the things that these posters said would/could never happen are actually happening. It's a credibility issue. At first I was with those who said that hell will freeze over before anyone loses money out of a segregated account. I still want to believe it but I don't know for sure. As a trader with a comparatively small account, the outcome of this episode is of extreme interest to me.
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From Reuters, Friday, October 21, 7:08PM

Refco's futures brokerage unit is still operating and has not filed for bankruptcy, and one of its key customers, Cargill Inc., said it will continue trading with the business.

Cargill is not alone. Jacob Goldfield, a member of the J.C. Flowers & Co.-led group that has offered to buy the futures unit said customers are now staying with the business and that the client base has stabilized.

But Refco cautioned in a court filing that time is of the essence, and selling the business quickly is crucial.

"Given the fragility of the acquired business, the buyer's commitment to proceed with the sale requires that the sale be consummated quickly," Refco said.

J.C. Flowers, led by former Goldman Sachs Group Inc. (NYSE:GS - News) banker Christopher Flowers, offered to buy the unit last week for $768 million after being was approached by Refco.

http://biz.yahoo.com/rb/051021/financial_refco.html?.v=2
 
Quote from Apex Capital:

From Reuters, Friday, October 21, 7:08PM

Refco's futures brokerage unit is still operating and has not filed for bankruptcy, and one of its key customers, Cargill Inc., said it will continue trading with the business.

Cargill is not alone. Jacob Goldfield, a member of the J.C. Flowers & Co.-led group that has offered to buy the futures unit said customers are now staying with the business and that the client base has stabilized.
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The Apex Capital argument, advanced here, goes kind of like this. Apex put one round in one chamber of his revolver, spun it, put it to his head, and pulled the trigger. The gun didn't fire, and so, Apex lived. This convinces Apex that his activity was safe. So, in the future, he will continue to engage in this behaviour, and he will continue to launch false accusations, personal attacks, threats, and censorship campaigns against others who advise against this activity.

Apex advocates that we emulate him, by continuing to play his game of Refco Roulette, at Refco and at futures brokers other than Refco, using both our own money, and other people's money. He continues to deny the need, identified by both the CFTC and the CME, for due diligence to protect against the risk of embezzlement or customer losses causing broker bankruptcy.
 
Excerpt of article from today's NYT:

Also on Friday, a hedge fund based in Moscow, the VR Group, which was named by Refco as a major creditor, said it would challenge the terms of the bankruptcy filing.

VR-related entities were named in Refco's Chapter 11 suit as creditors, with exposure of $472 million, making them Refco's biggest creditor.

But Richard Deitz, founder and president of VR, said the money was being held in custody by Refco and as a result VR should not be included in the creditor list.

"Those assets are our assets," Mr. Deitz said. "We vigorously reject the notion that any assets form part of the estate of Refco."

http://www.nytimes.com/2005/10/22/business/22refco.html
 
Quote from jimrockford:

WSJ confirms that Refco’s hidden +$400 million receivable was indeed, just as I suspected, the result of lax risk management resulting in customer trading losses in Refco, L.LC., the futures broker, not its parent holding company. These losses were transferred to the parent company as part of a scheme to hide them.
More...

When I read the WSJ article, I do not conclude that the $400MM of losses originated at Refco LLC. The origin was not identified. Maybe it was at Refco LLC, maybe at Refco Capital Markets, which I thought (?) provided prime broker functions, or at a different sub.

In a bankrutpcy court, the entity(ies) that accumulated of the losses could have huge importance.
 
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