Brokerage files for bankruptcy

NEW YORK - Refco has filed the fourth-largest bankruptcy in US history and agreed to sell its core futures trading business to an investor group for US$768 million ($1.1 billion) to salvage some parts of the damaged commodities and futures brokerage.

The developments followed a week in which customers pulled assets out of the New York firm as chief executive Phillip Bennett was charged with securities fraud. He is accused of hiding US$430 million he owed the company.

Before its recent troubles, Refco was one of the biggest market makers for commodities and financial futures, allowing funds and companies to trade contracts on commodities, bonds and currencies.

Refco filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the Southern District of New York. The filing listed assets of US$48.8 billion and liabilities of US$48.6 billion.

Refco's stock has lost nearly its entire value amid the scandal and was delisted from the New York Stock Exchange on Tuesday, just two months after the company went public at US$22 a share.

Its stock was at 75USc in over-the-counter trading yesterday, a stark contrast from a high of US$30.55 on September 7.

Austrian bank Bawag International Finance was the largest creditor, with claims of US$451.2 million. Refco said it had more than 1000 creditors.

It has agreed to sell its futures trading business to a group led by private equity fund JC Flowers.

JC Flowers is run by former Goldman Sachs partner Christopher Flowers.

Flowers and his London-based business partner Ravi Sinha, another former Goldman banker, first made headlines in 2000 when JC Flowers led a group of investors who bought the Tokyo-based Shinsei Bank in a controversial deal.

Under the Wall St-style leadership of the Flowers group, borrowers who failed to pay were cut off or restructured.

By last year, when the bank went public, it was reportedly valued at more than US$14 billion, and the Flowers group realised 12 times their investment.

- REUTERS