Former Refco principal Tone N. Grant has been indicted on charges of conspiracy to commit securities fraud, wire fraud, bank fraud, to make material misstatements to auditors, to make false filings with the U.S. Securities and Exchange Commission, to commit bank fraud and money laundering. Also, charges of bank fraud and money laundering have been added to superseding indictments for former CEO Phillip R. Bennett and former chief financial officer Robert R. Trosten.
According to the indictment, the company, then privately held, and its customers racked up millions of dollars in losses starting in the mid 1990s. Grant, Bennett and Trosten allegedly hid the losses by transferring them to another company they owned, Refco Group Holdings Inc., so that the losses appeared as receivables.
Allegedly, Trosten and Grant then hid the receivables from auditors by paying them down before quarter- and fiscal-year ends, and then directing transactions that made the debt appear to be that of Refco customers. Next they allegedly unwound the transactions, putting the debt back onto Refco Group Holdings.
After Thomas H. Lee Partners L.P. paid $1.9 billion for a majority interest in the company in August 2004, Refco sold $600 million in bonds to the public while securing $800 million in bank loans. According to Refco’s S-1, Refco Group distributed $550 million in cash, plus all of the equity interest in Refco Group's Asset Management business, which previously was owned by Forstmann-Leff International Associates LLC, to Refco Group Holdings Inc., the entity owned by Tone Grant and Phillip Bennett; it is now wholly owned by Bennett. The August 2005 initial public offering raised an additional $583 million. The $430 million debt owed to Refco by Refco Group Holdings was uncovered in October, just before the firm filed for bankruptcy.
Chris McMahon
