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Refco Banks Want to Steer Clear of Futures-Trading Operations

Posted on: Monday, 17 October 2005, 09:00 CDT

By Martin Flanagan City Editor

BANKS that underwrote disgraced futures trader Refco's float last summer have told regulators they are not prepared to take on financial responsibility for the stricken group's huge futures- trading operation.

Goldman Sachs, Credit Suisse First Boston and Bank of American are understood to believe the risk would be too open-ended as Refco teeters on the verge of bankruptcy.

This follows the revelation that Refco's British-born chairman, Philip Bennett, allegedly siphoned off dollars 430 million (GBP 243m) into a secret hedge fund.

One source said yesterday: "One option that has been considered by the banks is them taking up positions and balances in Refco's futures business. But it is really a non-starter.

"It would be fraught with difficulties from a legal liability perspective. Those banks would not know who the clients were. If the futures business went into administrative protection [Chapter 11 in the US], it's not clear where anyone who had agreed to take on the clearing and settlement for it would stand."

However, it is believed they all accept they may now be facing multi-million-dollar lawsuits over their work as flotation advisers to Refco.

Another source said yesterday: "Legal actions in this scenario are inevitable. But the banks will probably contend that there was a limited amount they could do when they were dealing with what looks a complex and determined fraud."

On Thursday, Refco halted operations at its capital markets division, and the following day it said it had closed its securities business. Refco was floated in the US two months ago with a value of 2.8bn dollars.

Source: Scotsman, The

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