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$669 Million Judgement against Refco: Christopher Sugrue, Phillip Bennett, & Thomas Hackl

Refco Phillip Bennett
Phillip Bennett REFCO

Informative read:

New York (May 02, 2014, 6:27 PM ET) — The special master in the Refco Inc. securities fraud multidistrict litigation on Friday recommended that a New York federal judge enter a $669 million judgment against five defendants, for their roles in the scheme that brought down the massive commodity brokerage.

Under Ronald Hedges’ proposal, ex-Refco Group Ltd. President Tone Grant, former Refco CEO Phillip R. Bennett, former Refco Vice President Thomas Hackl [see: Acies Asset Management, S.A.], PlusFunds Group Inc. Founder and Chairman Christopher Sugrue, and Refco Group Holdings Inc. would pay $669,370,9991, plus $78,430 in interest for each day after April 29 until the judgments are entered.

While the defendants had already been judged years earlier to be liable by default, Hedges’ report focused on the damages the group owed stemming from the massive losses Sphinx and PlusFunds investors incurred.

The special master indicated that the group should be held “jointly and severally liable” for the mutlimillion- dollar judgment, leaving the individuals’ portion of the damages owed unclear.

The recommendation will now head to U.S. District Judge Jed S. Rakoff, who is overseeing proceedings for the consolidated suits.

The five defendants are all named in the sprawling litigation brought by liquidators and trustees for Sphinx Ltd., which was induced into depositing hundreds of millions of dollars into accounts that were exposed in the $1.5 billion Refco scheme.

Sphinx and PlusFunds, which helped manage its investments, lost approximately $263 million when Refco collapsed in 2005. Sphinx has since entered liquidation proceedings, and PlusFunds filed for Chapter 11 bankruptcy protection in 2006.

Many were found guilty of criminal charges related to the con, including Bennett, who is serving a 16-year sentence, and Grant, who received a 10-year term of his own.

The suits arose from revelations that Refco executives had concealed $430 million in debt through complex trading and lending schemes and shell companies, in an effort to bolster the company’s financial reports.

Refco sought Chapter 11 protection in October 2005, two months after a $583 million initial public offering, and about a year after it was purchased for $1.9 billion in a leveraged buyout by Thomas H. Lee Partners LP.

Five days before Refco sought protection, more than $312 million was transferred from the Sphinx accounts at Refco to unprotected offshore accounts. The hedge fund group ultimately settled with Refco creditors, agreeing to turn over $263 million.

Meanwhile, federal investigators believe Refco had been covering up customer trading losses by transferring securities to appear as debts owed by Refco Group Holdings Inc., a holding company controlled by former directors. Directors later hid RGHI’s receivables from auditors by transferring funds to make the debt appear to be from an entity not related to RGHI, prosecutors alleged.

The plaintiffs are represented by Lee M. Andelin, Leo R. Beus and Dennis K. Blackhurst of Beus Gilbert PLLC; and David J. Molton, Andrew S. Dash and Mason C. Simpson of Brown Rudnick LLP.

Counsel information for the defendants named in the recommendation was not immediately available Friday.

The case is In re: Refco Securities Litigation, case number 1:07-md-01902, in the U.S. District Court for the Southern District of New York.

Another article from Bloomberg, “Ex-Refco Executives Hit With $672 Million Court Judgment”:

Refco Inc.’s former Chief Executive Officer Phillip Bennett and two of his ex-colleagues were ordered to pay $671.7 million to Sphinx Providence Ltd. and its hedge funds for losses stemming from a $2.4 billion fraud at Refco.

U.S. District Judge Jed Rakoff assessed the damages, including interest, against Bennett, former senior vice president Christopher Sugrue, former executive vice president Thomas Hackl [Acies Asset Management, S.A.] and Refco Group Holdings Inc., an entity Bennett owned and used to hide more than $1 billion of debt.

Once the biggest independent U.S. futures trader, New York-based Refco collapsed in 2005, two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in U.S. history, after having revealed Bennett’s holding company owed it hundreds of millions of dollars.

In the ruling, which was made public today in Manhattan federal court, Rakoff followed last month’s recommendation of a special master assigned to the case. Rakoff didn’t address the special master’s conclusion that former Refco Group Ltd. President Tone Grant should also be held responsible for the damages.

Bennett is serving a 16-year prison sentence. Grant is serving 10 years.

Sugrue was chairman of PlusFunds, which filed for bankruptcy in March 2006 after the disclosure of its relationship with Refco helped spur investor withdrawals.

The details are not pretty.

Thomas Hackl
Thomas Hackl (more)

Also read the whitepaper from Edward Pekarek (Pace Law School) titled “The Due Diligence Defense and the Refco IPO”: here.

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