Bloomberg News
October 15, 2005
SourceRefco Inc., the futures broker under federal investigation for securities fraud, sped toward collapse Friday as regulators barred its owners from taking out money and Standard & Poor's said a debt default may be imminent.
Refco Securities Llc, the company's biggest unit, "initiated the process of unwinding proprietary and client positions" and won't seek new business, Refco said in a statement Friday. S&P cut Refco's credit rating for the third time in four days and said "a payment default is highly likely."
Refco's disclosure on Oct. 10 that former chief executive Phillip R. Bennett covered up $430 million in bad debts prompted customers to abandon the company, threatening its solvency. On Thursday, Refco placed a 15-day moratorium on all business at its Refco Capital Markets Ltd. and hired Goldman Sachs Group Inc. as a financial adviser.
The Securities and Exchange Commission Friday suspended withdrawals of equity capital from Refco Securities and Refco Clearing Llc for 20 days. Such withdrawals "may be detrimental to their financial integrity or unduly jeopardize their ability to repay customer claims," the agency said in a statement.
Federal investigators are expanding probes of New York-based Refco to determine if there was more misconduct or potential fraud at the company, according to a person with direct knowledge of the investigations.
At the New York Stock Exchange, trading of Refco's shares is halted indefinitely.
Exchanges and regulators have wide influence over Refco's fate. The NYSE can delist Refco, and the Commodity Futures Trading Commission can rescind its registration as a futures broker, a move that would put most of the company out of business.
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