Quote from thewoodcutter:
However how did this money end up at RCM? My hunch (and it is just that) is that it is not uncommon practice (for $ rich accounts) to ask the holder of funds to earn them overnight income - so if RCM where offering better overnight rates than the banks (or the money had to flow through RCM to get to the banks) then that could be how the money ended up in one of their accounts at time of collapse, that does not excuse RCM for not returning the money (it maybe the banks refused to return it to REFCO as they are securing it against RCM credit lines???) but it maybe a more reasonable explaination than some of the "fingers in pie" theories going on.
If the customer funds had been maintained at the regulated futures trading entity, in segregated accounts, then they would have been protected against the broker's creditors, except for customer trading losses in the same pool of customers, and except for customers in the same pool demanding return of their funds. Refco destroyed that protection by holding funds in the wrong place, without full and effective disclosure, so that Jim Rogers became just another bankruptcy creditor, to the great detriment of his clients.
I don't see how this can be justified or explained as anything other than embezzlement or fraud. If you were told you were purchasing a senior bond, so that you would be close to the front of the line of creditors in the event of bankruptcy, but then at bankrupcty time you discovered that you were tricked by the fine print of some cryptically and deceptively worded escape clause, and were actually sold a junior bond placing you at the end of the line, how is this not fraudulent?
Remember Charles Keating? He went to jail for operating this type of scheme at Lincoln Savings and Loan. He sold mutual funds to little old ladies, by telling them that their deposits were federally insured. They weren't insured, so the little old ladies lost everything in the bankruptcy, and had to eat cat food for protein.
Exposing people to credit risks, in excess of what is disclosed or agreed upon or authorized by laws or exchange rules, is just one of many strategies, employed by white collar criminals, to commit crimes legally. It is just a way of putting lipstick on the pig of criminal behaviour.
"Nothing is illegal if one hundred businessmen decide to do it." - Andrew Young.
