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Refco Scandal

 
 

In October federal prosecutors charged Refco's CEO, Phillip R. Bennett, with security fraud in a scandal now known as the Refco Scandal.

Refco is a large foreign exchange and commodity broker providing clearing and execution services for global exchange-traded derivatives.

Bennett committed the fraud by attempting to hide the fact that hundreds of millions of dollars owed to Refco was owed by a company Bennett himself controlled, Refco Group Holding.

In early October Refco discovered outstanding fees owed by Refco Group Holding totaled $430 million. Upon investigation it was revealed that the company was controlled by Phillip Bennett.

Bennett was unable to settle the debt due and was charged with securities fraud which carries a maximum penalty of a $5 Million fine and up to 20 years in prison.

Caught up in the fallout from this lawsuit is the Chicago accounting firm Grant Thornton.

Grant Thornton is being sued for failing to detect the accounting irregularities at Refco. It is alleged that Grant Thornton issues false and misleading statements regarding Refco's financial results.

A spokesman for Grant Thornton said that although the legal costs will be high they will be absorbed by the firm. Grant Thornton has insisted their innocence in the scandal claiming they were mislead by Refco and former CEO Phillip Bennett.

Since the scandal broke Refco's stock has fallen from $28.56 per share to $15.60 per share.

 

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