Ex-Refco Executives Were Co-Conspirators, U.S. Says

Ex-Refco Executives Were Co-Conspirators, U.S. Says

Feb. 11 (Bloomberg) -- Five former Refco Inc. executives were co-conspirators in a swindle that cheated investors in the bankrupt futures brokerage out of $2.4 billion, U.S. prosecutors said.

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

``It's not a judgment by anyone with respect to guilt or innocence,'' Putzel said in an interview. Dispenza, who was chief operating officer of the Refco Capital Markets currency- trading unit, ``absolutely asserts that he engaged in no misconduct,'' Putzel said.

The filing indicates the former executives' statements and actions at Refco may be discussed at the fraud trial of former Refco Chairman Phillip Bennett, ex-finance chief Robert Trosten and ex-President Tone Grant, which is scheduled to start next month. That evidence may aid lawyers for investors who have sued Refco's banks and former executives.

``It reaffirms what we understood from our investigation,'' said Sean Coffey, a lawyer who represents the investors. ``But our principle focus is on the gatekeepers who the public trusted to keep an eye'' on Refco.

Refco's Collapse

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 the 15th-biggest bankruptcy in U.S. history after disclosing Bennett owed it hundreds of millions of dollars.

Prosecutors say Bennett, who was also chief executive officer, Trosten and Grant hid losses by making them appear as debt owed to Refco by a holding company controlled by Bennett. All three men have pleaded innocent.

Sexton held senior positions at Refco and served as CEO after Bennett left in 2005. Sexton's lawyer, Stuart Friedman, declined to comment. Silverman was secretary of Refco and held other top posts there. His lawyer, Lawrence Zweifach, also wouldn't comment.

Murphy, who headed Refco subsidiaries including Refco Managed Futures, has paid more than $7 million to settle the investor lawsuit. His lawyer, Yoram Miller, didn't immediately return a call.

Dispenza now heads FX Clear LLC, part of futures and options broker MF Global Ltd., which bought some of Refco assets. Diana DeSocio, a spokeswoman for MF Global, declined to comment.

Bawag's Role

Hackl, former head of investment banking at Austria's Bawag PSK Bank, joined Refco in 2002. Bawag, which was listed in the Feb. 8 filing as a co-conspirator, paid at least $683 million in 2006 to avoid U.S. prosecution for its role in Refco's collapse. Hackl's lawyer, Avraham Moskowitz, declined to comment.

Prosecutors don't say in their three-page filing what the 14 individuals and Bawag allegedly did wrong. The government filed the document as part of pre-trial disclosures ordered by U.S. District Judge Naomi Reice Buchwald.

Classifying a person as an unindicted co-conspirator is common in white-collar cases.

``The only thing worse than that is being listed as a co- defendant,'' James Cohen, a law professor at Fordham University in New York, said in an interview. The designation doesn't necessarily mean the person broke the law, he said.

Civil Suit

In the civil lawsuit pending in Manhattan federal court, investors say Sexton, Murphy and Silverman approved the firm's deceptive October 2004 bond registration statement and its initial public offering registration statement. Also named as defendants are auditors and banks including Chicago-based Grant Thornton LLP and units of Credit Suisse Group and Deutsche Bank AG. They're not named as conspirators in the government filing.

According to the indictment, Bennett, Trosten and Grant lied about Refco's losses, moved operating expenses off the firm's books, and padded Refco's revenue.

Through their years-long fraud, the men were able to obtain lines of credit, sell notes, gain financing and take the company public in August 2005, prosecutors said. Among the victims was Boston-based buyout firm Thomas H. Lee Partners, which purchased a $453 million stake in Refco in 2004, prosecutors said. The case is U.S. v. Bennett, 05-cr-1192, U.S. District Court, Southern District of New York (Manhattan).

BLOOMBERG