Refco agrees to pay $8 million to settle allegations


May 25, 1999|By BLOOMBERG NEWS

WASHINGTON -- Refco Inc., a global futures brokerage, agreed yesterday to pay $8 million to settle allegations that its lax procedures let a California money manager juggle customers' profits and losses.

Refco, without admitting wrongdoing, agreed to pay $7 million to the U.S. Commodity Futures Trading Commission, including $1 million for an industry study of how firms keep track of orders. In a related settlement, Refco will pay $1 million to the Chicago Board of Trade.

Refco took Treasury futures orders from the money manager without account numbers, enabling him to decide who made and lost money, the commission said. The investment consulting firm, Capital Insight Brokerage, of Beverly Hills, Calif., lost about $100 million of client funds in 1995 after wrong-way bets on interest rates. The firm collapsed as a result.

Chicago-based Refco was cited for its "serious record-keeping and supervision failures," said Geoffrey Aronow, the commission's enforcement director. The settlement is one of the five largest with the commission.

The industrywide examination of practices is the first required by the commission as part of a settlement. "We hope that this study will promote industry practices that provide a higher level of customer protection and market integrity," Aronow said.

Refco has paid the commission $2.8 million since 1990 to settle cases alleging failure to supervise employees, keep records or segregate accounts.

The company has changed its management since July and removed or reassigned employees. It hired a former commission director of enforcement, Dennis Klejna, as general counsel. "No one who was in any way involved in this matter is either at Refco anymore or doing the same things," he said.

Capital Insight and its owner, Jay Goldinger, were not identified by name in the settlement. But lawyers familiar with the matter said Goldinger was the broker whose actions are described. Goldinger's attorneys did not immediately return calls seeking comment. The commission has not charged Goldinger with any wrongdoing.

Refco failed to investigate signs of impropriety and let the money manager -- who had trading authority over about 70 customer accounts with Refco -- change account numbers on trades without a Refco employee checking that a legitimate error occurred, the commission said.

Refco shouldn't have delegated supervision of phone clerks who took the orders to the salesman, whose income was tied to the number of contracts traded, the commission said.

"Obviously this was a failure to supervise, and it's a record-keeping issue," said Joe Murphy, Refco's president since last month. "It's something that I believe we've addressed and put the proper supervisory procedures in place so that this doesn't happen again."

Constantine Mitsopoulos, the salesman who ran Refco's trading desk at the time of the violations, agreed in January to a $1 million settlement with the Chicago Board of Trade that banned him from the exchange for 10 years.

Pub Date: 5/25/99

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