Ex-Refco Chief to Plead Guilty in Fraud, Person Says

Ex-Refco Chief to Plead Guilty in Fraud, Person Says

Feb. 15 (Bloomberg) -- Former Refco Inc. Chairman Phillip Bennett will plead guilty over his role in a fraud that cost investors in the futures brokerage $2.4 billion, a person familiar with the case said.

A ``proceeding of interest'' in the Bennett case is set for 4:45 p.m. in Manhattan federal court, U.S. Attorney Michael Garcia's office said, declining further comment.

Once the biggest independent U.S. futures trader, Refco collapsed in October 2005, two months after raising $670 million in an initial public offering. The New York-based firm filed for bankruptcy after disclosing Bennett owed it hundreds of millions of dollars.

Bennett, 59, was set to face trial March 17 in Manhattan federal court. Former Refco finance chief Robert Trosten, ex- President Tone Grant and Bennett hid losses by making them appear as debt owed to Refco by a holding company Bennett controlled, Refco Group Holdings Inc., prosecutors claimed.

Bennett was charged in a 20-count indictment that included counts of conspiracy, securities fraud, bank fraud and money laundering. The government said at the time that Bennett faced life in prison if convicted. He has been free on bail since his 2005 arrest. Grant and Trosten pleaded not guilty and face trial next month.

Finance Chief

At least 16 corporate executives have been sentenced to 20 years or more in prison since 2003, according to court records.

Daniel Marino, the former finance chief of bankrupt hedge- fund firm Bayou Group LLC, was sentenced to 20 years in prison last month for defrauding investors of more than $400 million. Former WorldCom Inc. Chairman Bernard Ebbers received 25 years for fraud and ex-Enron Corp. Chief Executive Officer Jeffrey Skilling got a 24-year term.

The guilty plea by Bennett, who was also Refco's CEO, would follow a similar move by former Refco offshore unit CEO Santo Maggio, who pleaded guilty Dec. 19 to fraud and conspiracy.

Maggio's plea came a day after federal prosecutors unsealed an 11-count fraud and conspiracy indictment against ex-Refco outside lawyer Joseph Collins. The attorney was accused of helping hide hundreds of millions of dollars in bad debt from investors. He has denied wrongdoing.

Gary Naftalis, Bennett's lawyer, didn't return calls seeking comment. Federal prosecutors claimed Bennett failed to disclose to investors that one of his companies owed the futures trading firm $430 million. Hiding the transactions helped Refco appear more financially sound as it prepared for a $583 million initial public offering in 2005.

Bawag PSK

After Refco's bankruptcy, Vienna-based Bawag PSK Bank agreed to pay at least $683 million to avoid prosecution and settle regulators' claims that it helped Refco hide $1.3 billion in losses before the firm went bankrupt.

Bennett had a salary and bonuses totaling $3.3 million in 2005. A graduate of Cambridge University in England, he built Refco into the largest independent futures brokerage in the U.S. He joined the firm in 1981 and served as president, CEO and chairman since September 1998. Along with Grant, Bennett transformed Refco from a firm that focused on trading for itself to one that executed transactions for clients.

As a broker, Refco put together buyers and sellers of exchange-traded derivatives such as interest-rate futures and bonds. It employed 2,400 people in 14 countries and had more than 200,000 accounts.

Refco Shareholder

Bennett, through Refco Group Holdings and as an individual, was Refco's second-biggest shareholder after Boston-based buyout firm Thomas H. Lee Partners LP.

At his plea hearing, former Refco executive Maggio said he helped the firm hide losses, inflate revenue and move loans off its books. He said Refco issued false financial statements as it deceived lenders, investors in its IPO and Thomas H. Lee Partners, which purchased a $453 million stake in Refco in 2004.

Maggio served as president and CEO of Refco Securities LLC and Refco Capital Markets Ltd. He took a leave of absence in October 2005.

Last week, federal prosecutors also named five additional former Refco executives as co-conspirators in the fraud.

William Sexton, Joseph Murphy, Stephen Dispenza, Philip Silverman and Thomas Hackl were among 14 people identified in a Feb. 8 court filing. Designating them unindicted co-conspirators allows prosecutors to introduce statements into evidence that might otherwise be excluded, said Henry Putzel, a lawyer for Dispenza.

The case is 05-CR-1192, in U.S. District Court for the Southern District of New York.

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