Refco Defendants Face New Charges in Fraud Case

A former owner of Refco was charged Tuesday in a fraud that cost investors more than $1 billion in losses. Prosecutors also added charges against the former chief executive and chief financial officers of the commodities brokerage giant.

Tone N. Grant, 62, of Chicago, a former owner of Refco, was charged with bank fraud and money laundering along with former CEO Phillip R. Bennett, 58, of Gladstone, New Jersey, and former CFO Robert C. Trosten, 37, of Sarasota, Florida.

Bennett and Trosten had been charged previously with conspiracy to commit securities fraud, false filings and wire fraud for allegedly trying to hide hundreds of millions of dollars of debt owed to Refco by a company controlled by Bennett.

In a rewritten indictment brought in U.S. District Court in Manhattan, prosecutors described how the then-privately held Refco in the mid 1990s sustained hundreds of millions of dollars of losses through losing trades while the company was partially controlled by Bennett and Grant.

Prosecutors said Bennett and Grant, seeking to hide the losses, transferred many of them to accounts that made it appear as if they were a debt owed to Refco by a holding company, which was actually controlled by Bennett and Grant.

The indictment accused Bennett and Grant of directing a series of transactions every year from 1999 through 2005 to hide the losses from Refco's auditors and others.

The superceding indictment accused Grant of joining Bennett and Trosten in a plot to defraud participants in a 2004 leveraged buyout of Refco by misleading a private equity fund involved in the transaction and other investors about Refco's true financial health.

According to the indictment, Grant received $16 million in proceeds from the leveraged buyout transaction along with the right to share half of Bennett's profits from any future sale of his Refco stock holdings.

The rewritten indictment contains eight new counts, including a bank fraud charge against Bennett, Brosten and Grant in connection with the 2004 leverage buyout transaction; money laundering charges against Bennett, Trosten and Grant and additional wire fraud charges against Bennett and Grant.

The new charges carry potential prison sentences of more than 50 years in prison. If convicted, Trosten already faced up to 45 years in prison while Bennett face up to 85 years in prison.

The indictment accused Bennett and Trosten of manipulating the company's financial records from 1999 through 2005 to make it appear as if the debt was owed by a Refco customer.

The plot unraveled in October 2005, just two months after Refco went public, when Refco announced it had discovered it was owed $430 million by a company controlled by Bennett. Refco's stock value plummeted and it was forced into bankruptcy proceedings a week later.

Refco was one of the world's biggest commodities brokerages, employing some 2,400 employees in 14 countries.

Norm Eisen, a lawyer for Grant, said: "Mr. Grant is innocent and will vigorously fight these charges and clear his name." Gary P. Naftalis, a lawyer for Bennett, said: "Mr. Bennett has consistently affirmed that he is not guilty of any of the government's charges and looks forward to his day in court."

Robert Morvillo, a lawyer for Trosten, said the rewrite of the indictment was "basically old hat at this point." "All they've really done is add another defendant," he said, declining to comment further.

All three defendants were scheduled to enter a plea to the new indictment Friday.