Bloomberg – Refco Inc. held offshore accounts with as much as $525 million in fake bonds, indicating the futures broker’s troubles may be more extensive than previously reported, according to four people with direct knowledge of evidence gathered by U.S. prosecutors investigating Refco’s collapse.
New York-based Refco held the securities for Bawag P.S.K. Bank, Austria’s fourth-largest bank, and Liquid Opportunity, an offshore hedge fund, under identification numbers that don’t correspond to registered bonds, said the people, who declined to be identified because the investigations are ongoing. One person said Bawag and Liquid Opportunity had shares in six Anguilla companies, which in turn held the bonds.
The U.S. Attorney in Manhattan and the Securities and Exchange Commission are trying to find out where the bonds originated and how they were valued, the people said.
The bond accounts were at Refco’s Bermuda-based unit, beyond the reach of U.S. regulators. Refco owed creditors $16.8 billion when it filed for bankruptcy protection on Oct. 17, a week after former Chief Executive Phillip Bennett allegedly used a loan from Bawag to pay uncollectible debts he had concealed from investors. Bennett denied wrongdoing.
“These unregulated entities are opaque to the U.S. government,” said Michael Greenberger, a University of Maryland law professor and former head of trading and markets at the Commodities Futures Trading Commission. “Because there is no handle on them here or in any of the other major financial centers, it’s just that much easier to commit fraud.”
Anthony Clark, an attorney who represents Refco at Skadden, Arps, Slate, Meagher & Flom in Wilmington, Delaware, declined to comment on the bond accounts. “I’m not saying it did or didn’t happen,” he said.
