Major commodities trader launches probe, shares sink

NEW YORK - Refco's shares sank 45 per cent yesterday after the commodities broker put its chief executive on leave and launched an investigation into USUS$430 million (US$624 million) it was owed by an entity he controlled.

The company, which went public in August and is one of the world's largest and most powerful commodities and futures dealers, also said it would probably delay filing its 10-Q quarterly financial statement with securities regulators for the quarter ended August 31.

The company's shares lost USUS$1.65 billion of market value yesterday.

Refco said it asked chief executive Phillip Bennett, who is also chairman, to take a leave of absence after discovering the USUS$430 million debt. The money was repaid with interest by Bennett yesterday. A lawyer representing Bennett did not return a call for comment.

Santo Maggio, president and chief executive of Refco Securities and Refco Capital Markets, was also asked to take a leave of absence.

Refco has hired independent counsel and forensic auditors to help its board investigate issues related to Bennett. At the same time, Thomas H. Lee Partners' co-president Scott Schoen was named chairman of a newly formed board of directors executive committee.

The company said in a memo to employees that it had "ample liquidity" to carry on with its business.

The review thus far has shown Bennett, without telling the company, gained control of the USUS$430 million debt it had considered possibly uncollectable.

Had Bennett disclosed his control of the debt, the company's financial statements would have reflected that.

But given the way the debt was accounted for, Refco said it determined that financial statements for 2002, 2003, 2004 and 2005 are not reliable.

Bennett took over running Refco in 1998.

At the time Refco's then-chairman Thomas Dittmer described Bennett as having a "bullet proof" track record of sound decision making and a "recognised financial stature".

He had joined Refco in 1981 from Chase Manhattan Bank, where he worked in credit and commercial lending. By 1983, he was chief financial officer at Refco.

Refco, shares of which rose 25 per cent in their August market debut, has operations in 14 countries and a large global derivative clearing operation.

It is among the most active futures brokers on exchanges in Chicago, New York, London and Singapore and a player in cash foreign exchange, international equities and debt markets.

The company's shares closed down USUS$12.96 to USUS$15.60.

- REUTERS