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Hedge fund gets go-ahead for Refco unit purchase plan

A US federal bankruptcy judge approved a British hedge fund's US$282 million cash bid for Refco Inc's last viable business unit while, 13 blocks away, Refco's former chief executive was formally indicted on securities and wire fraud charges stemming from the commodity broker's collapse.

After a 21-hour marathon auction that ended on Thursday morning, Man Group PLC won the bidding war to acquire Refco LLC, the last solvent subsidiary of Refco, and a handful of other subsidiaries and businesses. Bankruptcy Judge Robert Drain, overruling objections from worried creditors who wanted more time to review the agreement, approved the deal in an attempt to stop the continued exodus of Refco's customers -- the company's biggest asset.

Besides the US$282 million in cash, Man Group subsidiary Man Financial will assume US$37 million of Refco's debt and pay another US$4 million in "other consideration." The total purchase price could fall if Refco's commodity brokerage customers continue to move their accounts elsewhere before the deal closes, however.

Drain also approved a plan to allow Refco LLC to go into Chapter 7 bankruptcy so that Man can liquidate the company. Under Chapter 7, Man is able to fold Refco's remaining customer accounts into its own commodity brokerage subsidiary in a matter of days.

The judge noted that Refco's creditors could still file objections to the handling of their contacts or investments as the details of the deal are worked out and Refco LLC embarks on its separate Chapter 7 bankruptcy filing.

Refco's already bankrupt subsidiaries are not part of the sale, and face numerous lawsuits filed by shareholders, customers and others involved in Refco's business. The Chapter 7 filing gives Man some degree of legal protection against those lawsuits, however.

While the bankruptcy hearing was under way, a federal grand jury returned an indictment against former Refco CEO Philip Bennett, charging him with leading a conspiracy to sell US$583 million in stock to the public based on "false and fraudulent" statements of its finances.

Refco, which went public in August, filed for bankruptcy on Oct. 17, a week after it announced that a US$430 million debt to the company owed by a firm controlled by the ousted chairman and CEO had been concealed.

Bennett took responsibility for the money, securing a loan to pay it back just before the company placed him on indefinite leave Oct. 10.

The indictment said Bennett and others from at least as early as the late 1990s concealed losses in the financial markets by causing Refco to make false and fraudulent filings with the Securities and Exchange Commission.
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