Bankrupt Banker: Refco

Former Refco Inc. Chief Executive Officer Phillip Bennett was sentenced to 16 years in prison for defrauding investors out of $2.4 billion

<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizZSnj6TvuQkfGAPmEHxv7Jsca7e8sA7ruU4qGbKkcHGKUmhr0_s1llo3s651S06CaSHmYeuA7Dpq6f3zV5ehbnyzCXSvcn9ZLfzYKOfwFcr1p6t_vlDJO2631qBrijE5q12ObUEQhkzfH/s1600-h/bennette.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5218899580683736354" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizZSnj6TvuQkfGAPmEHxv7Jsca7e8sA7ruU4qGbKkcHGKUmhr0_s1llo3s651S06CaSHmYeuA7Dpq6f3zV5ehbnyzCXSvcn9ZLfzYKOfwFcr1p6t_vlDJO2631qBrijE5q12ObUEQhkzfH/s400/bennette.jpg" style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;" /></a> Former Refco Inc. Chief Executive Officer Phillip Bennett was sentenced to 16 years in prison for defrauding investors out of $2.4 billion in what U.S. prosecutors said was ``among the very worst'' white-collar crimes. Bennett was also ordered to forfeit the $2.4 billion. U.S. District Judge Naomi Buchwald in Manhattan rejected a government request that Bennett surrender to prison immediately and told him to report on Sept. 4. Until then, he must remain at his home in Somerset County, New Jersey, subject to electronic monitoring. ``You are the architect of the Refco fraud,'' Buchwald told Bennett today at his sentencing in Manhattan federal court. ``Individuals who commit crimes like yours are often staggeringly arrogant.'' Bennett, who turns 60 this month, pleaded guilty in February to bank fraud and money laundering stemming from his eight-year scheme to deceive banks, auditors and investors, including Boston-based buyout firm Thomas H. Lee Partners LP. Once the biggest independent U.S. futures trader, New York- based Refco collapsed in October 2005, two months after raising $670 million in an initial public offering. The company, which provided clearing and prime-brokerage services, filed for bankruptcy after disclosing that a Bennett-controlled firm owed hundreds of millions of dollars to Refco. Some 16 corporate executives have been sentenced to 20 years or more in prison since 2003. Former WorldCom Inc. Chairman Bernard Ebbers is serving 25 years for accounting fraud, and Enron Corp. ex-CEO Jeffrey Skilling got a 24-year term for the same crime. Bayou Group LLC's Samuel Israel was sentenced in April to 20 years for fraud. He jumped bail and fled, only to surrender and start his sentence today in New York. ``I made an unacceptable and appalling error in judgment,'' Bennett told the judge. ``I took the wrong path and crossed a line I never should have crossed.'' A graduate of Cambridge University in England, Bennett built Refco into the largest independent futures brokerage in the U.S. He joined the firm in 1981 and served as president, chief executive officer and chairman since September 1998. With partner Tone Grant, Bennett transformed Refco from a firm that focused on trading for itself to one that executed transactions for clients. He grew rich along the way, becoming a billionaire with a $20 million plane, an $11 million car collection, and works of art worth more than $29 million, the government said. Today, Bennett sought leniency, citing his cooperation with investors who have sued Refco's banks, his offer to cooperate with prosecutors and his willingness to take responsibility for his crimes. He said his scheme stemmed from an effort to save the company from bankruptcy long before the fraud was uncovered. Bennett has paid $1.2 billion to eliminate Refco's debt and repay investors, defense attorney Gary Naftalis said today. ``Did he do wrong things? Absolutely,'' Naftalis told Buchwald. ``Has he stood tall and admitted it? Yes.'' In court, Bennett's voice quavered as he apologized. He'll be deported to his native England after he completes his term. Under federal sentencing guidelines, he faced life behind bars. Assistant U.S. Attorney Neil Barofsky compared Bennett to white-collar offenders such as Ebbers and Bayou Group LLC Chief Financial Officer Daniel Marino, who is serving 20 years for his role in the $400 million fraud at that hedge-fund firm. He said the 20-year sentence Israel received should be a ``guidepost'' in the Bennett case. ``The scope and duration of the fraud, the loss that resulted from it, and Bennett's conduct in service of that fraud places him among the very worst white-collar defendants in this jurisdiction,'' Barofsky and Assistant U.S. Attorney Christopher Garcia wrote Buchwald on June 30. At Grant's criminal trial in April, prosecutors said the roots of the fraud stretch to 1997, when Refco began hiding massive losses sustained by clients in the Asian debt crisis. With its viability threatened, Refco began masking its true performance by moving more than $1 billion in debt off the company's books to a Bennett-controlled entity, Refco Group Holdings Inc., prosecutors said. In return, Refco Group Holdings gave Refco worthless IOUs, prosecutors said.The company hid the scam from Thomas H. Lee, which paid $507 million for a 57 percent stake in Refco in 2004; from banks and debt-holders that extended more than $1.4 billion in financing in 2004; and from investors who paid $583 million for shares when Refco went public. Grant was convicted. He has yet to be sentenced. Bennett and his aides defrauded victims from all walks of life, including his own secretary, who lost $5,000 she invested in the firm, prosecutors said. Testifying for the government at Grant's trial were former Refco finance chief Robert Trosten and Santo Maggio, the ex-CEO of Refco's offshore unit. Both pleaded guilty. Refco's ex-outside lawyer, Joseph Collins, has pleaded innocent to criminal charges. Bennett's lawyer didn't make a request for a specific federal prison. The final choice is made by the U.S. Bureau of Prisons. There is no parole in the federal system, though inmates may reduce their sentence by 15 percent for good conduct.

Former Refco Inc. Chief Executive Officer Phillip Bennett was sentenced to 16 years in prison for defrauding investors out of $2.4 billion

Former Refco Inc. Chief Executive Officer Phillip Bennett was sentenced to 16 years in prison for defrauding investors out of $2.4 billion i...

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

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 comp...