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Refco Shares Plummet as CEO Faces Mismanagement Allegations
Refco is not a household name, but it is a big player in the commodities and foreign exchange world. The company’s press releases describe it as “a diversified financial services organization with operations in 14 countries and an extensive global institutional and retail client base. Refco's worldwide subsidiaries are members of principal U.S. and international exchanges, and are among the most active members of futures exchanges in Chicago, New York, London and Singapore.” Its CEO and Board Chairman, Phillip R. Bennett, just repaid $430 million a firm he controlled owed Refco. Will they never learn?
The entire mess was nicely explained in a press release put out last week.
Based on the results of the internal investigation to date, the Company believes that the receivable consisted in major part of uncollectible historical obligations owed by unrelated third parties to the Company, that arose as far back as at least 1998. These obligations were transferred periodically to the entity controlled by Mr. Bennett, and the Company's books and records then reflected a receivable from that entity, rather than a receivable from the originating accounts. The fact that the receivable was from a company controlled by Mr. Bennett was hidden at the end of quarterly and annual reporting periods by reason of transfers to a third party customer account that we currently believe is unaffiliated with Mr. Bennett or anyone else at the Company.
This announcement helped put the stock down 70% and ensured that many clients pulled their money out of accounts at Refco. That isn’t surprising, and it may be that the company will recover in time. It seems that there is sufficient liquidity to keep operating.
However, what makes this very messy is the fact that Refco’s IPO was only in August. Credit Suisse First Boston LLC, Goldman, Sachs & Co. and Banc of America Securities LLC were the joint book-running managers for the IPO. Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Sandler O'Neill & Partners, L.P. and HSBC Securities (USA) Inc. were the co-managers. What did they know? When did they know it? And will anyone be held liable?
It still amazes that some people believe government ought to be run like a business. Some fear it already is.
© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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