Judge OKs $282 Million Bid for Refco; Former CEO Indicted
Nov. 14, 2005 (Associated Press) — A federal bankruptcy judge approved a $282 million cash bid for Refco Inc.'s last viable business unit while, 13 blocks away, Refco's former chief executive was formally indicted on securities and wire fraud charges stemming from the commodity broker's collapse.
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After a 21-hour marathon auction that ended Thursday morning, Man Group PLC won the bidding war to acquire Refco LLC, the last solvent subsidiary of Refco, and a handful of other subsidiaries and businesses. U.S. Bankruptcy Judge Robert Drain, overruling objections from worried creditors who wanted more time to review the agreement, approved the deal in an attempt to stop the continued exodus of Refco's customers - the company's biggest asset.
Besides the $282 million in cash, Man Group subsidiary Man Financial will assume $37 million of Refco's debt and pay another $4 million in "other consideration." The total purchase price could fall if Refco's commodity brokerage customers continue to move their accounts elsewhere before the deal closes, however.
Drain also approved a plan to allow Refco LLC to go into Chapter 7 bankruptcy so that Man can liquidate the company. Under Chapter 7, Man is able to fold Refco's remaining customer accounts into its own commodity brokerage subsidiary in a matter of days.
The judge noted that Refco's creditors could still file objections to the handling of their contacts or investments as the details of the deal are worked out and Refco LLC embarks on its separate Chapter 7 bankruptcy filing.
Refco's already bankrupt subsidiaries are not part of the sale, and face numerous lawsuits filed by shareholders, customers and others involved in Refco's business. The Chapter 7 filing gives Man some degree of legal protection against those lawsuits, however.
On Friday, Refco agreed to sell pieces of its foreign currency exchange business to one-time rival Forex Capital Markets in a deal valued at more than $110 million.
The bankrupt brokerage will sell more than 15,000 retail client accounts of Refco FX Associates LLC. Forex Capital Markets also will acquire 35 percent of Refco's foreign exchange unit.
The transaction includes cash, the assumption of certain customer account liabilities, and forgiveness of some Refco debt, and must be approved by the bankruptcy court.
While Thursday's bankruptcy hearing was under way, a federal grand jury returned an indictment against former Refco CEO Philip R. Bennett, charging him with leading a conspiracy to sell $583 million in stock to the public based on "false and fraudulent" statements of its finances.
Refco, which went public in August, filed for bankruptcy on Oct. 17, a week after it announced that a $430 million debt to the company owed by a firm controlled by the ousted chairman and CEO had been concealed.
Bennett took responsibility for the money, securing a loan to pay it back just before the company placed him on indefinite leave Oct. 10.
The indictment said Bennett and others from at least as early as the late 1990s concealed losses in the financial markets by causing Refco to make false and fraudulent filings with the Securities and Exchange Commission.
It said Refco in the 1990s had extended credit to customers so they could trade securities and commodities in accounts held at Refco. When customers were unable to make payments on hundreds of millions of dollars of market losses in their Refco accounts, Refco liquidated the positions and assumed the resulting losses in the accounts, the indictment said.
Rather than write off the losses, Bennett caused the losses to be transferred to a privately held Delaware corporation he controlled so that Refco's financial books would show that the private corporation owed Refco the money, the indictment said.
It said Bennett began in 1999 directing others to hide the money owed to Refco from Refco's auditors through a series of transactions.
His defense attorney, Gary P. Naftalis said, "Mr. Bennett welcomes the opportunity to face these charges in a court of law and to clear his good name."
Refco's customers, which include hedge funds and brokerage firms who regularly trade commodities such as oil and metals as well as foreign currencies, abandoned the company in droves once the scandal was revealed. Refco was forced to file for Chapter 11 bankruptcy protection just eight days after the accounting problems became public.
But while Refco has only a fraction of its customer base remaining, it also holds valuable ownership stakes in the nation's commodities markets. In addition to customer accounts, Man Financial will take control of Refco's seats or ownership stakes the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Board of Trade, the New York Mercantile Exchange and other exchanges. It also plans to keep most of Refco's employees.
-- Michael J. Martinez (AP Business Writer), Associated Press Writer Larry Neumeister contributed to this report. |
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