As reported in multiple news services, the international implications of the collapse and bankruptcy of Refco Inc. intensified in October 2005, just two months after its IPO. Austrian authorities were looking into the circumstances surrounding the $350 million euros loan by Austrian bank BAWAG to a company controlled by former Refco CEO Phillip Bennett, just before Refco’s Chapter 11 filing. It was also reported that Venezuelan securities authorities were investigating the fallout to local businesses there. Moscow-based hedge fund VR Group and related entities were reported to be one of the largest unsecured creditors of Refco, along with BAWAG and Wells Fargo.

What isn’t widely reported, at least not yet, is the dark underside of the business: the history of regulatory problems and compliance failures at Refco. The problems at Refco go back decades, and are chronicled in fines levied by the regulators, such as the CFTC’s $7 million fine against Refco in 1999 for order entry irregularities on the floor of the CBOT. On the civil side, a court in 2002 awarded our firm’s clients a total of $46 million, including punitive damages and interest, confirming an arbitration panel’s finding of statutory commodities fraud against Refco. Refco paid that fine and all the damages assessed against Refco was paid to our clients. How Refco’s current creditors will fare shall remain an open question for some time.