Monday, February 18, 2008

Guilty plea in offshore shell game

The Refco tale was first thrown into the Stew back in 2005.

It involved some of the biggest and brightest finance wizzes on both sides of the Atlantic pond, a Bermuda backdrop, and financial entanglements that wormed into a staid old German bank, that ultimately, like Northern Rock Bank in England, led to taxpayers bailing out the bank and picking up the tab for Refco's losses.

The most recent chapter in the drama finds the former Refco CEO crying in his fear as he pleads guilty to a bit of dastardly dalliance in the finances of the company, which led ultimately to the then fourth largest bankruptcy in US history.

Former Refco CEO pleads guilty in NY securities fraud case
Crying as he faced a judge, Refco Inc.'s former chief executive said he knew he was wrong to keep quiet about big losses at what was once one of the world's largest commodities brokerages.

"I know I was wrong. I deeply regret it," Phillip R. Bennett, a British citizen, said as he pleaded guilty Friday to conspiracy and fraud charges that carry a possible prison term of more than 300 years.

"I knew failing to disclose these filings was wrong," Bennett said.

Bennett declined to comment as he left court. His lawyer, Gary Naftalis, said: "Mr. Bennett has candidly acknowledged his involvement in the matter. He was forthcoming and candid and wants to put this matter behind him."

It wasn't always thus. When the investigation began Bennett steadfastly refused to acknowledge any wrongdoing.

According to Reuters and the FT,
Bennett had been scheduled to go on trial in March, along with former chief financial officer Robert Trosten and former president Tone Grant, in a case that drew comparisons to the furore over a massive accounting fraud that drove giant telecommunications company WorldCom into bankruptcy.

The 20-count indictment charged Bennett with conspiracy, securities fraud, bank fraud, wire fraud, false filing with the US Securities and Exchange Commission, material misstatements to auditors and money laundering.

US District Judge Naomi Buchwald, who accepted Bennett's plea, set a sentencing hearing for May 20. Bennett, who is a British citizen, faces a maximum of 315 years in prison and deportation.

The case is far from closed. As Bloomberg report last week,
Five former Refco Inc. executives were co-conspirators in a swindle that cheated investors in the bankrupt futures brokerage out of $2.4 billion, U.S. prosecutors said.

William Sexton, Joseph Murphy, Stephen Dispenza, Philip Silverman and Thomas Hackl were among 14 people identified in a Feb. 8 court filing in New York. Designating them unindicted co- conspirators allows prosecutors to introduce statements into evidence that might otherwise be excluded, said Henry Putzel, a lawyer for Dispenza.

"It's not a judgment by anyone with respect to guilt or innocence," Putzel said in an interview. Dispenza, who was chief operating officer of the Refco Capital Markets currency- trading unit, "absolutely asserts that he engaged in no misconduct," Putzel said.

Dispenza now heads FX Clear LLC, part of futures and options broker MF Global Ltd., which bought some of Refco assets. Diana DeSocio, a spokeswoman for MF Global, declined to comment.

Prosecutors say Bennett, who was also chief executive officer, Trosten and Grant hid losses by making them appear as debt owed to Refco by a holding company controlled by Bennett. All three men have pleaded innocent.

In the civil lawsuit pending in Manhattan federal court, investors say Sexton, Murphy and Silverman approved the firm's deceptive October 2004 bond registration statement and its initial public offering registration statement. Also named as defendants are auditors and banks including Chicago-based Grant Thornton LLP and units of Credit Suisse Group and Deutsche Bank AG. They're not named as conspirators in the government filing.

According to the indictment, Bennett, Trosten and Grant lied about Refco's losses, moved operating expenses off the firm's books, and padded Refco's revenue.

Through their years-long fraud, the men were able to obtain lines of credit, sell notes, gain financing and take the company public in August 2005, prosecutors said. Among the victims was Boston-based buyout firm Thomas H. Lee Partners, which purchased a $453 million stake in Refco in 2004, prosecutors said. The case is U.S. v. Bennett, 05-cr-1192, U.S. District Court, Southern District of New York (Manhattan).

FOLLOW THROUGH: Naked Shorts has some deep data on other personalities in the Refco action, and USA Today has this old story on some of its founding fathers and the Washington Post has an old story linking said fathers with controversy regarding Hillary Clinton. As Guambat said before, "someday it will be a very good film".


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