Refco Securities LLC frozen for 20 days, to be shut down

Regulators and bankers stepped forward Friday to assure investors that derivatives brokerage house Refco Canada Co. is not being swept up in the expanding scandal around its U.S. parent, Refco Inc.

Refco, the dominant intermediary in derivative markets, has been rocked this week by allegations that its former chief executive officer, Phillip Bennett, hid $430-million (U.S.) in debt that he may have owed the company. As the problems grew, Refco stock plummeted and the company shut down some of its American operations, in part due to lack of capital.

In the domestic market, the head of Refco Canada says it's business as usual, as all units are totally separate from the U.S. parent. The company holds about $200-million (Canadian) in client assets.

“Our operations are all up and running,” said Robert Dzisiak, president of Refco Canada in an interview from Vancouver. “Our customer's funds are all segregated from our American operations. And we have more than enough capital to run our business.”

He added that he hoped the U.S. situation would be quickly and cleanly resolved, as “what's happening in the U.S. has been very confusing, and troubling, for our people and our customers.”

At Refco Canada's request, the Canadian Derivatives Clearing Corp. (CDCC) issued a press release Friday that said Refco Canada “is in good standing and satisfies all CDCC membership and margin requirements.”

The CDCC is a self-regulatory body and guarantor of equity, index and interest rate financial derivative contracts traded on the Montréal Exchange, Canada's derivative marketplace. The CDCC monitors all of its members, including Refco, on a daily and inter-day basis.

In addition, National Bank Financial Inc., which acts as custodian or “carrying broker” for Refco Canada, sent out a letter that said: “We are pleased to confirm our responsibilities to protect any assets that are held in a Refco Canada Co. account where [National Bank Financial] is designated as the carrying broker.”
 
Now this is what should have been done on Monday...

NEWS ALERT
from The Wall Street Journal

Oct. 14, 2005

In an attempt to bring stability to the crisis at Refco, regulators have asked Goldman Sachs and other firms to buy or assume financial responsibility for its massive futures trading operation, people familiar with the matter said.

For more information, see:
http://wsj.com/article/SB112930138544668844.html?mod=djemalert


__________________________________
 
The Treasury will back GS' bid to buy Refco's book. I don't see any way around it; they've done it before, they'll do it again.
 
For once let GS take some responsibility... they have this prisitine reputation (and undeserved in my opinion)

The issu her eis the stability fo the markets, i fpeople lose confidnece in teh finaicla markets, ou rbiz is dead! All we do is trade paper on trust, with o trust we will all be in trouble.

GS, CSFB & BofA have some responsibility here for not discovering this during pre-IPO due diligence. The trio should be mandated to form a consiortitum to take equal stakes in REFCO LLC an dlalow REFCO LLC to continue opeartions.
 
Quote from riskarb:

The Treasury will back GS' bid to buy Refco's book. I don't see any way around it; they've done it before, they'll do it again.
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Agreed.
It will fit nicely with J Aron.
 
Quote from nkhoi:

"Refco's 9 percent notes due 2012, today's most actively traded bond, dropped 12 cents on the dollar to 28 cents, pushing the yield to 41 percent, according to Trace, the bond-price reporting system of the NASD. That means investors are betting that Refco is riskier than Delphi Corp., the auto-parts maker that filed for bankruptcy on Oct. 8. "

Apex, is this free money?
More...

No, because I believe that the greatest contributor to the profits of REFCO INC., came from the Refco Capital Markets Group which had Prime Brokerage services, securities trading and lending, over the counter fixed income and foreign exchange transactions ( essentially everything but futures, which is a pretty razor thin business ).

RCM does not look to be viable.
And because they contributed to roughly two-thirds of the profits, I do not see the Refco Notes as any kind of a bargain.

That having been said, it appears that REUTERS is now stating that Man Financial is intersted in buying the futures business of Refco Inc.
 
Quote from CPTrader:

For once let GS take some responsibility... they have this prisitine reputation (and undeserved in my opinion)
More...

um ... if Tommy Lee couldn't figure out what was wrong with Refco's books when they bought a private stake, it's unclear how much more Goldman, a mere underwriter and fee collector, is expected to be able to uncover anything.

I doubt if there is going to be a successful lawsuit on the basis of negligent due dilligence against the underwriter if the major shareholder itself before the IPO was also in the dark.
 
Bring 'em on. I hope they shut down half of refco, have to unless you want the cancer to spread - Amputate!!



The Pomerantz Firm Announces Securities Class Action Against Refco, Inc. -- RFX


2005-10-14 18:14 ET - News Release

NEW YORK, Oct. 14, 2005 (PRIMEZONE) -- On October 12, 2005, Pomerantz Haudek Block Grossman & Gross LLP (www.pomerantzlaw.com) filed a class action complaint in the United States District Court, Southern District of New York, on behalf of investors who purchased the common stock of Refco, Inc. ("Refco" or "Company") (NYSE:RFX) between August 11, 2005 and October 7, 2005 ("Class Period"). Refco has now conceded that the Registration Statement that was issued in connection with its August 11, 2005 initial public offering ("IPO") contained false financials and failed to disclose a $430 million debt owed to it by a company controlled by its CEO, Chairman and controlling shareholder, Philip R. Bennett. Defendants are Refco, Bennett, Gerald M. Sherer (Refco's CFO), certain underwriters, and Refco's outside auditors, Grant Thornton LLP. Plaintiff seeks remedies under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

On October 10, 2005, just nine weeks after the IPO, Refco disclosed that defendant Bennett owed Refco $430 million and was being placed on a leave of absence. Refco revealed that the "receivable was the result of the assumption by an entity controlled by Mr. Bennett of certain historical obligations owed by unrelated third parties to the Company, which may have been uncollectible." Significantly, the Company also acknowledged that based on the undisclosed related party transaction, its prior financial statements for the fiscal years ending 2002 through 2005 and the quarter ended May 31, 2005 should not be relied upon. On October 11, 2005, the Company conceded that the uncollectible receivable arose as "far back as at least 1998." On October 12, 2004, defendant Bennett was arrested after being charged with one count of securities fraud. On October 13, 2005, it was reported that a subsidiary of Refco, Refco Capital Markets Ltd., which provides clearing services to offshore hedge funds, was experiencing a cash crisis and would not allow its customers to withdraw their money for 15 days. The moratorium appears to have been prompted by an exodus of client accounts.

If you purchased the securities of Refco during the Class Period, you have until December 12, 2005 to ask the Court to appoint you as lead plaintiff for the Class. Lead plaintiffs must meet certain legal requirements. Shareholders outside the United States may also join the action, regardless of where they live or which exchange was used to purchase the securities. If you wish to review a copy of the Complaint, to discuss this action, or have any questions, please contact Teresa L. Webb (tlwebb@pomlaw.com) or Carolyn S. Moskowitz (csmoskowitz@pomlaw.com) of the Pomerantz Firm at 888.476.6529 (or 888.4-POMLAW), toll free. Those who inquire by e-mail are encouraged to include their mailing address and telephone number.

The Pomerantz Firm, which has offices in New York, Chicago and Washington, D.C., is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 50 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members.

More information on this and other class actions can be found on the Class Action Newsline at www.primezone.com/ca
 
Quote from TheStudent:

um ... if Tommy Lee couldn't figure out what was wrong with Refco's books when they bought a private stake, it's unclear how much more Goldman, a mere underwriter and fee collector, is expected to be able to uncover anything.

I doubt if there is going to be a successful lawsuit on the basis of negligent due dilligence against the underwriter if the major shareholder itself before the IPO was also in the dark.
More...

That is completely different, IPO underwriters have fiduciary responsibility to ensure that the information presented accurated to the public markets, the private equity firms does not have that responsibility.

Problem with whomever buys Refco at this moment is that they will also take over a publicity mess. It is amazing for me that over span of 4-5 days, what began as a whisper of a mere "failed to disclose a related party transaction" to people on CNBC comparing Refco to Enron, and using words like "derivatives failure". I still maintain that the Refco is similiar to nature to what Sullivan did at MCI Worldcom (an entity still exists with huge assets), not the outright systematic fraud at Enron (an entity that has ceased to exist with absolutely no assets). But the emotion charged news reports certainly don't care of the difference.

The truly scary thing is that if there are truth to the reports that CFTC is looking for "white knigtht" buyers is the signal that TH Lee is ready to throw in the towel. TH Lee has a plenty of cash, and can easily sustain the daily operation for Refco for years until the firm is in firm ground. And yet if the rumors are to be believed, the buyout will come from outside. If going through the various scandals, etc, taught me over the years is that in the event of a disaster, math and valuation models are out of the windows, pure emotion takes over.

The Chicago Futures industry need to stabilize Refco, and fast, to avoid a general public negative reaction, similar to the energy trading industry was essentially deserted after Enron went down.
 
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