Saturday, October 15, 2005

What the heck was he thinking? (Refco goes down)

In September of 2003 I ran into an old college acquaintance of mine who I hadn't seen since '89. It was the middle of the day in the middle of the week and we were both at Borders. Naturally, I assumed he was an entrepreneur, like myself as I couldn't imagine how else he could afford such freedom. I asked what he did and he responded under his breath, "finance," or something like that. Coming from the world of retail finance, I wasn't satisfied with that and I inquired further. He continued with a bit of apprehension until he realized that he was going to have to explain. "I trade currencies", he said.

I knew enough about currencies to be dangerous...To myself. But my old college friend, a former floor trader, was a guru. He gave me a mini-clinic, answered a few questions, gave me a few tips and it was all over. I was a believer! The first trading house he introduced to me was a company named RefcoFX.

I began to study currencies, and I became pretty familiar with this company. They seemed unstoppable with acquisition after acquisition over the next couple of years. Bennett seemed a genius. But after Enron, TYCO, Worldcom and Sarbanes-Oxley, one would think that all heads of publicly traded companies, or companies hoping to be traded publicly, first understanding the basics of accounting and GAAP, would refrain from doing anything stupid.

430 what?
The story, according to The Wall Street Journal, is that Bennett's private company owed Refco $430 million. A transaction completed by Bennett and another party is under a lot of scrutiny. According to The Wall Street Journal, "Mr. Bennett had Refco lend the customer $335 million. On the same day, the customer loaned the Bennett-controlled company, Refco Global Holdings Inc., $335 million, the complaint says. Mr. Bennett then used that money to pay down debt it owed Refco." Uh, yeah. Like I was saying, Ken Lay, Dennis Kozlowski, Bernie Ebbers, they all happened recently enough for the results to be fresh in all of our minds. What the heck was Bennett thinking?


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