Forex Capital Markets (FXCM) and 300 former Refco FX Associates LLC customers have lost a constructive trust case they brought against the company in an effort to reclaim $10.6 million dollars tied up in the bankruptcy since October 2005.
Lawyers for Refco Account Holders had argued that Refco held the FX traders’ property in a bailor/bailee relationship, in which a bailor, or property owner, gives possession of property to a bailee, or custodian, but retains ownership of the property, according to Paul Palley, a member of the RFX customer group that brought the lawsuit. But the judge dismissed the case because cash, not property, was involved. As a result, RFX customers could receive as little as 18¢ on the dollar. The group continues to petition the court and claims it is entitled to CFTC protection, a claim the CFTC denies.
In March 2006, the Refco Creditor Committee shot down FXCM’s $110 million offer, and a $130 million follow-up bid, for RFX and its assets, including 17,000 customer accounts and a pledge to return customer assets to their owners. In August, Gain Capital rescinded its $2.5 million offer for the RFX customer list, which included a plan to return some customer funds to their owners, when it discovered the list hadn’t been maintained in an electronic format. In November, Gain eventually purchased the customer account information and marketing list for $750,000.
The bottom line is former RFX customers had their money tied up for nearly a year after a deal was in place that may have returned their money in full, and in the end they ended up with a fraction of their account value as opposed to the secured creditors who nixed the deal and ended up being paid in full.
Refco Inc.’s Chapter 11 plan is now effective for the company and subsidiaries, including Refco Capital Markets Ltd. (RCM) and RFX. According to Refco, secured lenders were owed $717.7 million and were paid in full and in cash. Bond holders are expected to receive 83.4¢ on the dollar. RCM securities customers are expected to receive approximately 85.6¢ on the dollar and RCM’s general unsecured creditors are expected to receive approximately 37.6¢ on the dollar. General unsecured creditors at the other Refco companies are expected to receive between 23¢ and 37.5¢ on the dollar for their claims.