Refco debacle widens and now involves Austrian bank

By : Joe Lauria in New York
October 30, 2005
The Business, Online

AUSTRIAN bank BAWAG is set to file lawsuits against Refco, as the widening scandal involving the US futures trader has prompted a former Refco executive to co-operate with US authorities trying to get to the bottom of the affair.

Austrian regulators last week also launched an investigation into the Refco debacle and expect to release a first report in a fortnight on BAWAG’s role in the accounting scandal. BAWAG is Austria’s fourth-largest bank. It was listed as Refco’s biggest creditor in papers filed by Refco in the US bankruptcy court this month. BAWAG is owed E350m ($424m, £238m) by Refco’s former chief executive, Briton Phillip Bennet, as well as E75m by Refco itself.

BAWAG, owned by Austria’s trade unions, is working with a battery of US?lawyers preparing the lawsuits against several targets, the bank said. The main target is Bennett, to whom BAWAG continued to lend money until 9 October, the day he was suspended by Refco. The next day he was arrested and charged with securities fraud and hiding $430m in debt from the company and its shareholders...

...The US probe was given a boost last week when Santo Maggio, president of the Refco Capital Markets unit, agreed to co-operate with the Justice Department and the Securities and Exchange Commission (SEC). Maggio had been put on leave by the Refco board on 10 October, the same day Bennett was arrested. As a Refco insider, Maggio’s participation is expected to help investigators pressure other executives to co-operate as they build their case. A judge last week gave prosecutors only until Monday to get an indictment against Bennet from a Grand Jury. The deadline could be extended.The US investigators have broadened their probe beyond the original charges against Bennett for hiding debt. They are also looking into the connections between Bennett and BAWAG. The SEC is also probing the role played by Grant Thornton, the accounting firm, which had audited Refco’s books. The investment banks that underwrote Refco’s $583m initial public offering (IPO) in August are also under investigation...

Labels: Department of Justice, Grant Thornton, Phillip Bennett, Refco