Refco Phillip R. Bennett pleaded guilty to all 20 counts

Phillip R. Bennett, 59, of Gladstone, NJ, had been charged in connection with his role in the collapse of the former financial services company, and pleaded guilty to all 20 counts in the superseding indictment against him. He is scheduled to be sentenced on May 20 and remains free on bail pending sentencing.
He pleaded guilty to charges of conspiracy, securities fraud, making false filings with the SEC, wire fraud, making false statements to Refco’s auditors, bank fraud and money laundering.

Refco was a large, Manhattan-based financial services company that offered securities, derivatives and commodities brokerage services to investors. From as early as the mid-1990s,Refco, which was then privately held and controlled in part by Bennett, sustained hundreds of millions of dollars of losses through its own and its customers’ trading. In order to hide the existence of those losses, Bennett transferred many of them to appear as a debt owed to Refco by Refco Group Holdings, Inc., the holding company that controlled Refco and was in turn controlled by Bennett. Bennett and others directed a series of transactions every year from at least 1999 through 2005 to hide the RGH receivable from, among others, Refco’s auditors, by temporarily paying down the receivable from RGHI over Refco’s fiscal year-end and replacing it with a receivable from one or more other entities not related to Bennett. Thus, at every fiscal year-end and, later, at every fiscal quarter-end, Bennett directed transactions that turned the debt owed to Refco from RGHI into a debt owed to Refco by a Refco customer. Shortly after each fiscal year- or quarter-end, these transactions were unwound, returning the debt to RGHI. The massive debt owed by Bennett’s holding company to Refco was increased not only by losses sustained through its customers’ trading but also through proprietary trading losses accumulated over several years, operating expenses shifted out of Refco Group and into RGHI, and fake foreign exchange and U.S. Treasury security trades carried out for the purpose of increasing Refco’s stated income.

In particular, Bennett hid from others, and contributed to the RGHI debt to Refco, among others, the following losses:
–At least $90 million in losses sustained by a customerin trading on the Chicago Mercantile Exchange in 1997;
–At least $185 million in losses sustained by a group ofcustomers trading in Asian markets in 1997;
–At least $40 million in losses from Refco’s own tradingin Russian bonds in 1998.
In addition, prosecutors said Bennett caused the following expense-shifting and revenue-padding transactions, among others:
–At least approximately $40 million of computer expenses moved out of Refco and into Bennett’s holding company between 1999 and 2002;
–At least approximately $38 million in artificial income from inflated interest rates charged on the debt owed by Bennett’s holding company to Refco;
–At least approximately $13 million in profits from fake U.S. Treasury notes between Refco and Bennett’s holding company; and
–At least approximately $10 million in profits from fake-foreign exchange trades between Refco and Bennett’s holding company.In August 2004, Thomas H. Lee Partners, L.P., purchased a majority interest in Refco, financed by an approximately $1.9billion leveraged buyout transaction. In connection with that transaction, Refco sold approximately $600 million of notes to the public and borrowed approximately $800 million from a syndicate of banks. In August 2005, Refco conducted an initial public offering of approximately $583 million of Refco’s common stock.On Oct. 10, 2005, Refco issued a press release announcing, in substance, that it had discovered that it was owed a debt of approximately $430 million by an entity controlled by Bennett. Following release of this information, the market price of Refco stock plummeted, and Refco’s stock was subsequently delisted by the New York Stock Exchange. Refco Inc. and many of its subsidiaries filed petitions in bankruptcy on Oct. 17, 2005. 2-16-08