Refco ready to sell futures business

Digest

October 18, 2005|By NEW YORK TIMES NEWS SERVICE

Refco, the giant commodities and futures brokerage firm that has been unraveling over the last week, is expected to put its futures business into bankruptcy protection today, people briefed on the company's plans said last night.

Refco will also announce that it has reached an agreement to sell that business to an investor group led by J. Christopher Flowers, a former Goldman Sachs partner who runs a private equity fund. The business - the only Refco unit remaining that is not in the process of being shuttered - has a book value of roughly $750 million. By putting the unit in bankruptcy, Refco is seeking to limit the buyer's potential exposure to the raft of litigation that awaits Refco and its advisers.

On Oct. 10, the company announced that its chief executive, Phillip R. Bennett, was put on indefinite leave. It said that Bennett had hidden a $430 million debt owed to Refco by a company that he controlled. That debt, which was shifted to a hedge fund called Liberty Corner Capital, was not disclosed or associated with Bennett in the company's initial public offering in August. Refco also said that its financial statements as far back as 2002 could not be relied upon.

Shares of Refco plunged more than 70 percent after the announcement. On Thursday, the New York Stock Exchange halted trading in the stock, while the company's bonds continued to plummet. By the end of the week, Refco had shut its unregulated capital markets business as well as its regulated broker-dealer operation. Those businesses have been closing out trades and are not expected to be part of a sale.

Refco's client accounts have dwindled by roughly 20 percent, said one person involved in the negotiations. It is unclear whether the prospect of a buyer will stem client losses.

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