Refco Account Security

[2cents]

Quote from range:

Excerpt of article from today's NYT:
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

am interested to hear about any 'scheme' allowing custodial customer monies to be ranked as 'secured obligations' if any, but the more i dig... e.g. if this is still current... not a chance:

http://www.cftc.gov/tm/tmint-10.htm

{ The Division is also concerned that persons making use of a safekeeping account may mistakenly expect special treatment in the event of the bankruptcy of the FCM. One of the principal purposes of the Bankruptcy Reform Act of 1978 (11 U.S.C. §101 et seq. (1982)) with respect to the bankruptcy of an FCM was to promote equitable treatment of customers and to provide for an across-the-board application of pro rata distribution to all customer commodity accounts whether or not the funds related to such accounts were maintained with separate depositories or otherwise were specifically identifiable. The Division's position is that a safekeeping account or any separate segregated customer funds account could not be used to give a preference to a pension plan, a registered investment company or any other customer in a bankruptcy distribution, and if the issue were to arise in the course of an FCM bankruptcy proceeding, the Division would recommend strongly to the Commission that appropriate actions be taken to ensure that all customers, including institutional customers, are treated equally. The Division recognizes, however, that certain third-party custodial arrangements may create unnecessary confusion on the part of the institution on whose behalf it was established or a reviewing court in the event of an FCM bankruptcy and assuredly would cause additional administrative expenses to be incurred. [...]

In conclusion, the Division wishes to reiterate that a proper safekeeping account in accordance with the guidelines set forth in this interpretation is simply a separate customer segregated account for a single customer which does not change that customer's rights as against any other customer. }

(ps: for avoidance of doubt, i know refco llc is not the case in point at this juncture, however if this holds for cftc-regulated fcms, it is h.likely to hold for unregulated entities as well, innit?)

 

[jimrockford]

No,

2cents,

The gist of the law you are citing is that FCM bankruptcies are treated differently, and as an exception to, the laws governing bankruptcies in general. I believe, furthermore, that in general, for bankruptcies not involving FCMs, specifically identifiable property, which can be traced to a specific party, for whom the property was held in trust, does not become part of the bankruptcy estate out of which the bankrupt's debts are settled, and instead the specific party-owner is entitled to return of that property, but I am not certain; perhaps we have some more knowledgeable ET members who can better explain.

 

[2cents]

thks jimrockford... i've looked further, found some academically interesting stuff that just demonstrate how complex things can get, for people who like to read...:
www.occ.treas.gov/ftp/bulletin/2002-39.doc

but i guess this from the nfa booklet sums it up nicely for spot forex traders like me:

http://www.nfa.futures.org/investor/forex/forex.pdf#search='nfa%20forex%20what%20investors%20need%20to%20know'
{ You are relying on the dealer’screditworthiness and reputation

Retail off-exchange forex trades are not guaranteed by a clearingorganization. Furthermore, funds that you have deposited totrade forex contracts are not insured and do not receive a priorityin bankruptcy. Even customer funds deposited by a dealer inan FDIC-insured bank account are not protected if the dealergoes bankrupt. }

... think more protection is available to retail spot fx traders in the UK tho', at least up to GBP48K /acct (not a lot but...), via Client Money Rules etc type framework.... but i cld be wrong... anybody can confirm?? how abt institutional accts??

 

[Apex Capital]

Quote from jimrockford:

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.

You are completely out of your mind.

I have never once, not once, denied any need to conduct due-diligence and dare anyone on this thread to quote where I stated otherwise. And neither have I ever advocated that people on ET should emulate me. You continue to make assumptions about how I conduct business that are completely baseless, let alone your claims that what I have stated on ET concerning this topic is something that is absolute, and all-encompassing.

You have no idea what due-diligence I have conducted and you have no idea what kind of relationships that I have in the FCM business ( personal as well as professional ) that go far and beyond any sort of academic inquiry that someone like you, yourself is able to make.

Moreover, your obsession with bashing and attacking REFCO to no end makes this fairly obvious. The amount of time that you have spent on this subject . . . even though you have ZERO relationship with REFCO is quite telling.

Time to get a life, buddy.