Phillip Bennett, the former chief executive of Refco, one of the world's largest futures brokerage firms, was charged yesterday with securities...
NEW YORK — Phillip Bennett, the former chief executive of Refco, one of the world’s largest futures brokerage firms, was charged yesterday with securities fraud stemming from a $430 million loan he secretly obtained from the firm, U.S. Attorney Michael Garcia said yesterday.
The complaint, unsealed in U.S. District Court, charges that as early as 2004 Bennett borrowed hundreds of millions of dollars from Refco through a company that he controlled. Garcia noted that when news of Bennett’s debt was made public, the stock’s value plummeted by 45 percent, resulting in a $1 billion loss in market value to investors.
Bennett was ousted as Refco’s CEO on Monday, after company auditors discovered the debt transfer and he repaid the $430 million. The complaint charges that Bennett concealed the debt to burnish the Manhattan-based company’s worth just before Refco’s initial public offering Aug. 10.
“Bennett had been keeping this debt a secret from regulators and from the members of the public who had just two months ago invested hundreds of millions of dollars in an initial public offering,” Garcia said at a news conference yesterday.
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He said the investigation was continuing.
The complaint charges that in August, Bennett failed to disclose to the Securities and Exchange Commission that he had engaged in a series of transactions using a privately owned company he controlled, Refco Group, through which he borrowed hundreds of millions of dollars from Refco.
Garcia said Bennett repeatedly shuffled the debt on and off Refco’s books at each quarterly audit to conceal it. Assistant U.S. Attorney in the Southern District of New York David Esseks said yesterday the loan amount fluctuated and at one point was as high as $545 million.
Garcia said prosecutors in his office launched an investigation Monday, upon Refco’s disclosure of the secret loan.
“After working around the clock since Monday, this office, along with the Postal Inspector’s office were able to develop evidence that Phillip Bennett had played an active role in hiding from the public the debt from Refco,” Garcia said.
At Bennett’s arraignment last night, Esseks argued that Bennett should be held without bond because Bennett is estimated to be worth up to $1 billion and is a British citizen. “He has the incentive, he has a place to go, he has untold amounts of money,” Esseks told U.S. Magistrate-Judge Douglas Eaton.
Bennett’s lawyer, Gary Naftalis, insisted his client was not enormously wealthy, arguing that Bennett had used his shares in Refco as collateral for a loan to repay the $430 million he repaid to Refco.
Naftalis charged that prosecutors had “jumped the gun” and said Bennett’s repayment showed he had no intention to flee the country but wanted to stay and clear his name.
“This man bellied up to the bar and said, ‘I’ll pay $430 million,’ ” Naftalis said. “He did not flee. No one in their right mind would do that … this is not conduct of anyone who’s going anywhere.”
Naftalis also noted that WorldCom’s CEO Bernard Ebbers was freed on $10 million bond and argued that his client was married and had been living in Gladstone, N.J., for 27 years.
Eaton agreed that Bennett could be released yesterday evening on a $50 million personal recognizance bond.
Eaton ordered Bennett to surrender travel documents and be confined to his Park Avenue apartment until electronic monitoring could be installed.