Refco Fallout

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ApexCapital;
Like your professional SPX comments;
and wouldnt take JimRockford
public service/due diligence comments on
Refco as libel, or personal attacks.

CME still making strong uptrends,
doesnt seem to be a negative fallout like some wrote
against CME:cool:
 
I see people on many forums talking about leaving US based brokers and transferring their money to UK, Canada, Switzerland....
I can't blame them, refco case has shown complete disregard for client's deposits, the moment withdrawal's have been frozen, and nobody seems to care really.
It is very dangerous for the financial system of any Country to allow this kind of a failure. Today brokers, tomorrow banks and day after tomorrow all those trillions of US bonds might turn into "refco client's money"
That's a shame
 
Of course not! this is an old story, refcofx is unregulated unit of their business and registered somewhere in aruba or bermuda or god knows where, I sincerely wish those people get their money but that's as likely as me recording a song with Michael Jackson
 
REFCO STIFFING ITS CUSTOMERS
By RODDY BOYD
NY POST

October 29, 2005 -- Lawyers for collapsed futures trading giant Refco Inc. are trying to treat investors' cash and investments as debt that doesn't need to be immediately returned to the bankrupt firm's customers.

Instead of classifying the cash and investments as client property and returning them as soon as possible, investors with accounts at Refco Capital Markets might have to settle for around 40 cents on the dollar — the same as if they had lent the firm that cash.

Refco's lawyers made the motion at a meeting with creditors yesterday.

Meantime, Refco's disgraced chief Phillip Bennett was scrambling to find six people to guarantee the $50 million bail set after he was arrested on securities fraud charges.

His lawyer, Gary Naftalis, said Bennett had put up $5 million in cash and $16 million in real estate, but that his former colleagues and friends were reluctant to guarantee the bond given the case's high profile.

"This is a man who sold $200 million in stock in August," said David Esseks, the U.S. attorney prosecuting Bennett. "The money has got to be somewhere."

U.S. Magistrate Judge Frank Maas ordered Bennett to produce a sworn financial statement by Tues. Nov. 1, and will likely rule on his lawyer's bond reduction motion shortly after that.

Yesterday's motion wasn't the first time Refco clients' funds have become an issue.

Earlier this week, hedge fund pioneer Jim Rogers and another Refco client, Inter Financial Services Ltd., sued the firm seeking return of about $520 million. Rogers' fund has about $340 million tied up in Refco.

J. Gregory Milmoe, a lawyer for Refco's bankruptcy attorney Skadden, Arps, told creditors that the matter might have to be decided by a U.S. bankruptcy court judge.

But even if the court rules that Refco's client capital was for investment purposes, there is still about $16 billion in debt that has to be paid off, and much of that is either guaranteed at the regulated futures trading subsidiary or secured by the firm's assets.

"Any way you look at this, many of the Refco Capital Markets clients are going to have to take some [loss] on their positions," said an investor in Refco's junk bonds. "There are no hard assets to be sold, and the cash from the sale of the units is going to go to pay down bondholders," he said.

Refco's initial public offering underwriters Goldman Sachs, Credit Suisse First Boston and Bank of America Securities are staring at a combined $190 million in liability, according to a research report from S.C. Bernstein analyst Brad Hintz.
 
I checked the RefcoFX website, at www.refcofx.com, to see if their sales pitches and risk disclosures fraudulently misled customers re: the fact that they were exposing themselves to credit risk that RefcoFX might go bankrupt and leave the customers with nothing. I discovered that all of the relevant links to information about safety of funds, "why RefcoFX", and the like, have been disabled. So if there was fraud, it looks like the RefcoFX mooks were smart enough not to leave the evidence in full view on the web.

I did find one risk disclosure document which describes a whole bunch of risks, like trading losses, internet problems, computer failures, etc., but nowhere on the list was any mention made of the risk of RefcoFX bankruptcy. I guess they figured that if that particular risk came to fruition, it wouldn't matter anymore anyway, because they would all be gone at that point, so why rain on the parade by making a disclosure?
 
I sent the following letter to my Senators and Congressman via http://letterstocongress.org/l2/ printed service so they get it in two days via Western Union. You can also email your congressman on this service for free so I'd encourage you to do it. If you like my letter by all means use it for yourself.

Dear [Senator's name was inserted here],

As I am sure you know, Refco, the largest commodities and futures sales
organization has just filed bankruptcy. As a client of one of the
unregulated operating units that filed bankruptcy named RefcoFX
Associates, LLC I am apparently getting screwed. I don't understand why
there is not regulation in place to protect someone like me.

I didn't invest in the stock of their company. I have a currency-trading
(FOREX) brokerage account with them and was using their software and
through lots of hard work and study had made some money trading
currencies. It appears they may be treating customer accounts as if they
were part of their assets with which to pay debts to their creditors...this is wrong. Customer accounts should be held sacrosanct and totally separate from the firm’s operating capital. If they marketed to customers that the customer accounts were separate, which they did, why is it that those accounts now are being used to pay THEIR debts to THEIR creditors? This is clearly wrong.

Following this episode (which is going on as I write this and yet to be
resolved by the bankruptcy judge -- I really can't believe that there is
anything to deliberate on this -- customer account money should be
customer account money, PERIOD) I have started investigating where my
money is safe and have found that Canadian investors and FOREX traders
like myself are completely safe if they use Canadian accounts that are
backed by the Canadian Investor Protection Fund (see http://www.cipf.ca) -- they are protected up to 1 Million Canadian if a firm goes bankrupt. As an example the same company RefcoFX that I have been describing has a Canadian division -- they are completely safe and ARE allowing customer withdrawals from their Canadian customer accounts unlike their US counterpart RefcoFX Associates, LLC, which is not allowing customer withdrawals since the bankruptcy filing. This is because that division in Canada has better regulation and insurance to protect investors -- why don't we in the US enjoy the same level of protection? Why aren't FOREX trading dealer/brokers regulated here with the same oversight as a stock brokerage? Why isn't there some form of insurance similar to what the Canadians have to protect investors from unforeseen pitfalls like the crooks in Refco.

The one thing that will turn investors, traders and the like away from the
US markets in a hurry is not believing their money is safe here; this
episode has a lot of people worldwide worried that the US isn’t a safe
place to put money and for good reason; they may lose a lot of it because of the fraudulent behavior of the top management of the company. Investor/Trader confidence is paramount to the markets – this completely undermines that confidence in the American markets when this type of episode occurs. CUSTOMERS SHOULD NOT LOSE THEIR MONEY BECAUSE OF THIS! LET THE FIRM PAY ITS DEBTS WITH ITS OPERATING CAPITAL, NOT WITH CUSTOMER CASH ACCOUNTS!

How many investors have to vote with their feet and go to Canada or some other country to have their money adequately protected before it becomes clear that the regulatory oversight of the FOREX market in the USA is wholly inadequate.

Sincerely,
 
Quote from jimrockford:

Three questions, three answers.

(1) ... They are saying that you must exercise reasonable care. ...

(2) ... The CFTC knows that they lack the legal authority, the resources, and the ability to relieve market participants of their duty to perform due diligence in selecting an FCM. They freely admit it. Listen to them. http://www.cftc.gov/opa/brochures/opafutures.htm:

(3) Will I spend day and night checking out FCMs and hiring private investigators, etc.? No, that would be unreasonable. But if I were choosing an FCM, I would make a reasonable effort to protect myself, and also my clients.
More...



points taken. take care. was a pleasure "talking" to you.

peace
 
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