Daily Camera – At 7:32 in the morning on Oct. 13, Paul Van Dillen tapped out an urgent email to Refco Inc. “Please return $9.9 mm,” he instructed the New York-based brokeragefirm.
Refco had a reputation for stellar service, but Mr. Van Dillen, an analyst for AQR Capital Management, got the runaround that morning. He traded six more phone calls and emails with Refco over the next four hours in an effort to recoup the millions held in Refco brokerage accounts by the $25 billion hedge-fund manager. Eventually, in a late-morning phone conversation with Refco employees, he got alarming news: Refco had just frozen $4 billion worth of accounts at the Bermuda unit that held his firm’s money.
Refco filed for bankruptcy protection four days later, one of the largest and swiftest failures in recent Wall Street history. Refco, one of the world’s largest commodities brokerages, was a global trading hub for corporations, government agencies, individual clients and hedge funds. And yet its spectacular collapse came out of nowhere. AQR, based in Greenwich, Conn., is now one of thousands of big and small investors trying to recover about $1.8 billion of assets missing from client accounts.
In recent months, the inside story of Refco’s collapse is emerging in federal bankruptcy-court proceedings in lower Manhattan and in related civil and criminal actions. At its center is Refco Capital Markets Ltd. of Hamilton, Bermuda. Court proceedings have uncovered a host of unusual practices by the Bermuda unit that appear to have contributed both to Refco’s rapid growth and to its catastrophic fall.
