Refco Hidden Debts

About Refco Hidden Debts

Refco concealed its true financial condition through a complex scheme involving a related party. CEO Phillip Bennett transferred bad debts to Refco Capital Holdings, a British Virgin Islands entity, before each quarter end. The debts were transferred back after the reporting period. This made Refco appear profitable and solvent. The fraud was discovered after the IPO when Bennett was unable to reverse a transfer. Bennett had concealed 430 million in related party transactions. Tone Grants, a former Refco executive, was also convicted. Grant was sentenced to 10 years. The Refco fraud was remarkable for its simplicity and duration. It had been ongoing for years before the IPO. Underwriters and auditors were criticized for not detecting the round tripping of debt.