Monday, October 30, 2006

Of Refco, Bawag, Vienna, Elsner, embezzlement, Flottl, fraud, and such

Austria Charges Nine In Probe of Refco-Bawag Ties (WSJ articles require ticket to read)
Prosecutors in Vienna have charged nine men, including the former chief executive officer of Bawag PSK, on charges ranging from embezzlement to fraud amid an Austrian probe into ties between U.S. commodity brokerage Refco Inc. and the Vienna bank.

Among those charged was the former CEO of Bawag, Helmut Elsner, and Wolfgang Flöttl, who traded on behalf of Bawag from New York and is the son of another former Bawag CEO, Walter Flöttl. Robert Reiter, a former auditor at KPMG Alpen-Treuhand GmbH, which oversaw Bawag's books, also was charged. In the indictment, which was made public yesterday in Vienna, prosecutors allege the nine men "intentionally abused their positions of trust at Bawag" and engaged in transactions that cost the bank €1.44 billion ($1.81 billion).

The charges come a year after Refco, a large New York broker of commodities and other securities that catered to corporations, government agencies and hedge funds, disclosed that then-CEO Phillip R. Bennett had used a scheme to hide bad debt from Refco investors. Refco investors and U.S. prosecutors allege the scheme included Bawag, which sought to hide its own bad debt that largely was a result of Wolfgang Flöttl's trading losses.

In Vienna, prosecutors allege that Mr. Elsner hired Wolfgang Flöttl to trade in currency markets. Initially, the trading was successful but ultimately led to massive losses. Wolfgang Flöttl handled much of the trading in the New York area, while at the same time establishing himself as a benefactor of New York arts and charities.

Austrian prosecutors allege that Mr. Elsner then used a complex coverup with the assistance of Wolfgang Flöttl, senior Bawag officials, the chairman of the Bawag supervisory board and a former senior KPMG auditor, Mr. Reiter. Mr. Elsner is charged with embezzlement and fraud, according to the indictment. Wolfgang Flöttl, Mr. Reiter and the other Bawag officials are charged with embezzlement, according to the indictment.

See more Guambat Stew related pieces here.

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