Friday, October 14, 2005

Refco: World's hedge funds face crisis as Refco suspends trading,16518,1592055,00.html

14 October 2004.

The World's hedge funds face a crisis.

The leading global broker Refco has suspended trading. It admits 'liquidity problem'.

It is said to be on the brink of collapse after running out of money in a key division.

Accounts irregularities at the firm have been discovered.

Fraud charges have been issued against its former chief executive Phillip Bennett.

Mr Bennett has been charged with defrauding investors by using a hedge fund to hide $430m (£250m) of debts owed to the firm.

There is a 15-day trading moratorium on Refco's subsidiary, Refco Capital Markets.

Refco, which has debts of $642m, 'is preventing a possible mass exodus of funds which could further jeopardise its trading position'.

Refco has lost three quarters of its stock market value in less than a week.

Kevin Starke, an analyst at Weeden & Co, said: "This company is in serious jeopardy. The fact that the bonds are trading at just above 52.25 cents on the dollar suggests that bankruptcy is at least a 50-50 possibility. It's very possible they have have to sell a unit or at least renegotiate their bank loans."

Investors may take legal action against the investment banks which brought the company to market - Goldman Sachs, Bank of America and Credit Suisse First Boston.

On August 16, Refco announced the completion of its flotation in New York. At an issue price of $22 a share (£12.50), the company was valued at $3.4bn. Refco announced this year that in the three months to the end of February, Refco's volume in the foreign exchange market alone was $111bn.


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