From the September 01, 2006 issue of Futures Magazine • Subscribe!

Gain/RFX deal DOA

The deal to sell the Refco FX (RFX) customer list to Gain Capital Management is dead; and RFX customer trading accounts have been locked as of July 31. Since the Refco bankruptcy proceedings began eight months ago, RFX customers have not been able to remove their own money; but they had been able to trade with those accounts, which totaled more than $100 million last October.

A Gain spokesperson says customer records required for regulatory purposes were not maintained in electronic format and couldn’t be delivered in a timely manner. Those records have been maintained by Forex Capital Management (FXCM), which provided the RFX trading platform. Drew Niv, president of FXCM says that his company is owed $1.8 million post bankruptcy, and agreed to complete the work contingent upon payment for services already delivered. The Refco Creditor Committee contested the payment and scuttled the deal.

“We are thrilled that the deal didn’t go through,” says Todd E. Duffy, a partner at law firm Duffy & Amedeo LLP, which represents 200 RFX account holders. He says that the closure of RFX will not affect the amount of money that Refco account holders could receive from the bankruptcy proceedings and is contesting the Refco Creditor Committee’s assertion that the customers are unsecured creditors.

Niv is financially supporting that effort and filing his own Constructive Trust Case against Refco. “By law the FCM is liable for what the affiliate does,” Niv says. “It is regulated by proxy. We are saying that (RFX) was run like a regulated entity. (RFX) had segregated funds. I know, because I kept the records for it.”

In other Refco news, an agreement was reached between Beeland Management Company and the Refco Capital Markets (RCM) chapter 11 trustee, Marc S. Kirschner. As a result, RCM securities and foreign exchange customers will recover 70% of their funds if the deal is approved by the court on August 16. Beeland, which manages the Rogers International

Raw Materials Fund LP and the Rogers Raw Materials Fund had previously objected to the deal.

Under the agreement, Beeland will recover $254 million, 70% of $364 million it had invested with Refco, and which Beeland contends was wrongfully transferred to the unregulated Refco Capital Markets from the regulated Refco LLC.

By Chris McMahon

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