If Refco Isn't Scary, What Is? summerized

[David Farber <dave () farber net>]

SECURITIES regulators and pundits say that there will be no financial  
market tremors emanating from Refco Inc., the enormous commodities  
and financial services firm that, after more than 30 years in  
business, hit the skids last week.

...Bennett, hiding a personal loan from Refco worth almost half a  
billion dollars from his shareholders, as described by prosecutors in  
their suit charging him with securities fraud.  Then there is the  
inability of Refco's auditors or investment banks to notice the  
repeated shuffling of this loan on and off the company's balance sheet.

...But scariest of all may be the fact that supposedly savvy  
institutional investors who are fiduciaries - TIAA-CREF and  
Oppenheimer Funds, for example - bought Refco's shares in spite of  
the hair-raising risk factors detailed in the prospectus.

...This is the way investors live now: a financial services company's  
inability to prepare its own financial statements does not preclude  
financial institutions from buying its stock.

...Refco told prospective investors that it was under investigation  
by both the United States attorney in New York and the Securities and  
Exchange Commission.

...At the time of the offering, the prospectus said, Mr. Maggio was  
near a resolution of the matter and was ready to accept an order from  
the commission suspending him from any supervisory duties at the firm  
for one year.  Nevertheless, "while complying with the restrictions  
of such supervisory suspension, Mr. Maggio would continue to work for  
us and Refco Securities in his current capacities," the prospectus said.

...Such nightmare risk factors as those enumerated by Refco might not  
have been a deal breaker for potential investors if they liked what  
they saw on its financial statements.

...Neither did Refco's buyers seem to question why the company's  
chief financial officer, Robert Trosten, left the firm last October,  
just a few months before his company was to go public.

...We are, after all in the anything-goes era where shareholders  
condone excessive executive compensation, accept massive dilution of  
their holdings from stock option grants and cheerfully buy into the  
corporate spin that masks operational realities.

http://select.nytimes.com/2005/10/16/business/16gret.html

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