Refco Inc.

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Refco Inc. was a $4 billion commodities and futures trading company that suddenly melted down in October 2005 after its CEO revealed he had hidden a $430 million debt to the company.

Refco logo.jpg

Refco's assets were sold one month later to Man Financial - which became MF Global - for $282 million in cash and $41 million in liabilities.[1]

Refco had over 17,000 futures customer and FX customer accounts at the time of its bankruptcy.[2]


Refco filed for bankruptcy on October 2005, one week after it was revealed that former chairman and CEO Phillip R. Bennett[3] had covered up $430 million in customer losses impacting the company since the late 1990s. Bennett hid the losses from auditors and investors by arranging regular multiple transactions between related Refco companies. Bennett would be sentenced to 16 years in prison for his role in the fraud that led to the Refco bankruptcy.[4]

Well-known investment company Thomas H. Lee Partners had bought a 38 percent stake in Refco in 2004 for $500 million as Refco was preparing for its IPO the following year.[5] That offering, in August of 2005 just two months before the company collapsed, saw Refco shares rise 25 percent on the first day's trading.[6]

Bennett and former Refco CFO Robert Trosten both pled guilty in federal court in February 2008 to fraud charges stemming from the collapse of Refco. Bennett pleaded guilty in a New York city federal court to 20 counts of conspiracy and fraud two-and-a-half years after his arrest. Prosecutors said losses connected to the fraud topped $1.5 billion. He plead guilty in February 2008 and was sentenced to 16 years in prison in July 2008.[7] [8] Barely a month before it sank, Refco announced it had completed its $208 million cash purchase of brokerage firm Cargill Investor Services. It was to be rebranded under the Refco Investment Services banner.

An accountant who'd been working for Refco less than two months discovered the fraud in August 2005 when he noticed abnormally large interest payments being made to Refco on debt servicing.[9]

Neither Refco's auditor, Grant Thornton LLP, nor its IPO underwriters Credit Suisse, Goldman Sachs and Bank of America picked up on Bennett's $430 million concealment.[10]

Refco was Hillary Clinton's broker during her famously profitable 10-month period of rookie cattle-futures trading in 1978-79, when she turned an initial $1,000 into a profit of over $60,000.[11]

Former Refco president Tone Grant, 64, was found guilty in federal court on Apr. 18, 2008 of five criminal counts related to the scheme and faced a possible sentence of life in prison.[12] Grant was alleged to have hidden losses topping $2.4 billion.[13] On October 30, 2008, Grant reported to the US Federal prison camp in Duluth, Minnesota to begin serving a 10-year sentence. He died while serving his sentence in January 2015 at the age of 70.[14]

On July 11 2009, Joseph Collins, Refco Inc.’s former outside lawyer, was convicted by a federal jury of helping Chief Executive Officer Phillip Bennett and other executives defraud investors of $2.4 billion.[15]

Regulatory Troubles[edit]

Refco through the years Refco to pay $8M settlement had many violations of exchange rules and the Commodity Exchange Act and would pay fines for the offenses.

In 1999, Refco was fined $6 million by the CFTC for a lack of supervision of an Introducing Broker and its CBOT financial floor staff for misallocation of trades. The fine was one of the largest ever issued by the CFTC at the time. Refco was also forced to pay $1 million to fund a study of how brokers receive and record customer orders. It also paid the Chicago Board of Trade a $1 million fine.[16]

The IB would not give an account number at the time of the trade and would then allocate the later to varying accounts.[17] The IB was Capital Insight Brokerage led by Jay Goldinger.[18][19]

As a result of this settlement with the CFTC, which Refco neither "admitted or denied," Refco hired several new executives including Joe Murphy. Dennis Klejna, the former director of the CFTC's Enforcement Division, had been hired to be the firm's general counsel overseeing its compliance efforts. Also, David Campbell was hired as managing director of European operations, Kathryn Meyer was named Chief Operating Officer. Joe Murphy, formerly the Executive Managing Director atShanghai Banking Corporation (HSBC) was named the new President of Refco, Inc.

In 1996, the CFTC fined Refco $925,000 for customer segregated funds violations. Refco was ordered pay a the fine and modify its internal procedures and lines of reporting, among other remedial actions.[20]

Rogers Funds[edit]

As the Refco bankruptcy was unfolding, the Rogers Raw Materials funds were caught up in the developments. Beeland Management, which manages the Rogers funds had moved over $360 million from Man Financial to Refco the week before the bankruptcy. The funds were supposed to move to a segregated futures account at Refco, LLC, regulated derivatives futures broker entity at Refco. However, Refco routed the funds to Refco Capital Markets, a Bermuda-based broker-dealer.[21][22]

The Rogers Raw Materials funds were based on an index created to track the price movement of exchange traded commodities. Rogers had written a book titled "Hot Commodities" which predicted a 15 to 20 bull market in commodities. The success of the book, and Rogers frequent appearances on business related television every time commodities seemed to go up created a lot of demand for the Rogers funds.

However, Rogers wanted even more money under management and moved his fund at Man Financial to Refco in an attempt to grow assets. Beeland Management had moved the futures fund to Refco, but had still held the collateral at Man Financial. Rogers and Beeland Management hired Robert Mercorella, a former director of global marketing and business development at Refco, as its chief operating officer. He was to run Beeland and help grow the funds under management.[23][24] After orchestrating the deal for the Rogers funds to have Refco as the primary selling agent, Mercorella returned to Refco after just a month at Beeland.[25]

Additionally, Rogers had an agreement to sell his stake in Beeland to Refco, Mercorella testified in a court proceeding tied to the bankruptcy.

At the time of the bankruptcy, Beeland was managed by Walter Thomas (Tom) Price, III, the chief executive officer of Beeland and the Price Futures Group, and Allen Goodman, the chief financial officer at both firms. Rogers was a 69% owner of Beeland, while Price and Goodman did not own any equity in Beeland.[26]


  1. Court Approves Man-Refco Sale. HedgeWorld.
  2. Lessons Learned From Refco’s 2.4 billion dollar Fraud and Bankruptcy.
  3. Inside the Shadowy World of Phillip R. Bennett. Daily Telegraph (London).
  4. Former Refco CEO gets 16 years in prison. Reuters.
  5. A lingering question about Refco. Houston's Clear Thinkers.
  6. Buyout Firm Is in Talks to Acquire Futures Brokerage House Refco. Wall Street Journal.
  7. Ex-Refco chief plans appeal of prison sentence. Reuters.
  8. British Brokerage Boss is Jailed for 'Depraved' Fraud. The Guardian.
  9. Mystery at Refco: How Could Such a Huge Debt Stay Hidden?. New York Times.
  10. Refco: The Reckoning. Business Week.
  11. Hillary Clinton Futures Trades Detailed. Washington Post.
  12. Ex-Refco Boss Guilty of Fraud in Losses Scam. Reuters.
  13. Refco's Tone Grant Begins 10-Year Sentence for Fraud. Bloomberg News.
  14. Hillary Clinton Futures Trades Detailed. Washington Post.
  15. Tone Grant, Refco Ex-President Serving 10 Years, Dies. Bloomberg.
  17. In the Matter of REFCO, INC.. Commodity Futures Trading Commission.
  18. Refco to pay $8M settlement. CNN Money.
  19. Factbox: CFTC's biggest fines for trading infractions. Reuters.
  21. Despite Controversy, Rogers Commodity TRAKRS Ready AT CME. {{{org}}}.
  22. Jim Rogers' Funds Sue Refco. The Street.
  23. Refco Owes Jim Rogers Fund $362 Million. The Street.
  24. Jim Rogers Beeland Management Commodity Investment Firm Hires Robert Mercorella From Refco As COO.
  25. Rogers Discussed Selling Funds' Stake to Refco. The Street.