Word: refco
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...overseas, the former New York City hedge-fund operator had been located. Badian slammed the door of his posh Vienna, Austria, apartment in the heart of the city's embassy quarter--but not before being officially served with a civil lawsuit linking him to the beleaguered U.S. commodities firm Refco and tying him and Refco to a type of fraud that some argue has destroyed thousands of companies and bilked investors out of billions of dollars...
...deceiving. Just as Bennett was about to take off on a wine-tasting trip to Europe last week, police arrived at his Park Avenue penthouse to put him under arrest. Behind the refined veneer, it appears, Bennett may have been playing loose with the rules. Just two months after Refco raised $583 million in an initial public offering (IPO), federal prosecutors accused Bennett of hiding $430 million of uncollectible debt, in so doing propping up Refco's earnings and share price. When the news hit, Refco shares plunged from $28.56 to $7.90, wiping out $2.6 billion of shareholder wealth before...
...commodities markets that Refco had dominated were holding up well last week. But there will be plenty of fallout elsewhere. A source close to Refco's largest shareholder, buyout kingpin Thomas Lee, says Lee figures his remaining Refco stake is worthless. Lee recouped $175 million in the Refco IPO. But he had invested $507 million for 57% of Refco in 2004, using funds from dozens of public and private pension systems, including California Public Employees' Retirement System, Pennsylvania State Employees' Retirement System, General Motors and Verizon. As a Refco insider (several Lee executives are on the Refco board...
...book cooking so soon after the scandals of Enron, Worldcom and others. "Everybody had a chance to look them over," says Bill Harris, a forensic accountant at the business-services firm CBIZ. "Four hundred thirty million dollars is an awful big number to hide." Those who have dealt with Refco say there was reason to be careful. In 1999 the Commodity Futures Trading Commission levied $7 million in fines against Refco for order-taking and record-keeping violations. Several times during the '90s, Refco was cited by regulators for violations related to combining account balances and failing to supervise employees...
...recent years Bennett had improved Refco's record, but his handling of Refco's IPO may have been reckless in more ways than one. Not only did Bennett fail to disclose $430 million--more than double last year's net income--that would never be collected (believed to be the result of hedge-fund clients who didn't pay up after bad trades), but he also went ahead with the IPO even though his top lieutenant, Santo Maggio, was under investigation by the SEC in connection with a stock-manipulation scheme that had driven software firm Sedona into the ground...