Scandal rocks New York brokerage firm

[Jon8503]

The Guardian


The esoteric world of derivatives was rocked by scandal yesterday when leading futures brokerage Refco, which has substantial operations in London and New York, said it had discovered that chief executive Phillip Bennett owed the company $430m (£250m) and that none of its accounts dating back to 2002 could be relied upon for their accuracy.
The disclosure is likely to increase calls for tighter controls of the high risk and often arcane financial instruments that have seen phenomenal growth over recent years in the City and on Wall Street.

Refco is one of the world's largest and most powerful commodities dealers, but its interests also spread across most financial assets, such as currencies and bonds. It specialises in derivative brokerage services. Last year it was the biggest trader on the Chicago Mercantile Exchange, the largest derivatives exchange in the United States.
In an opaque statement, Refco said that a company controlled by Mr Bennett had assumed "certain historical obligations" owed by third parties to Refco that "may have been uncollectable". He did so without telling the Refco board.

Analysts said that one interpretation could be that Mr Bennett had attempted to hide the bad debts. The firm said the amount did appear as a receivable on prior financial statements and on the balance sheet, but it as not shown as a related party transaction. The company warned that its financial statements for the past four years could no longer be relied upon. Mr Bennett, who has now repaid the money to the firm, has been put on leave pending further investigation.

Shares in Refco fell by a third yesterday as investors vented their anger. The company was floated in the US as recently as August, when the firm raised $583m. Part of that ire and possibly legal action is likely to be directed at the banks Credit Suisse First Boston, Goldman Sachs and Bank of America, which led the share sale, and the accounting firm Grant Thornton, which audited Refco's books. A year before the IPO, the private equity firm Thomas H Lee led an investor group that ploughed $507m of equity into Refco for a 57% stake.

(rest of story @ link below)

http://www.guardian.co.uk/business/story/0,3604,1589110,00.html

[aquart]

1. He "repaid the money"???

How rich IS this guy?

[napi21]

2. So! Didn't learn anything from all those execs goin to jail, huh?

Well, not problem Mr. Bennett! Maybe you'll be able to 'splain it all to the rest of the Corp world...FROM YOUR JAIL CELL!