Refco document production ordered

Dittmer, Hackl, Kavanagh, Klejna, Murphy, Sexton,
Silverman, Sugrue on a list of 20 to receive subpoenas

The doors of many of the best-known names in the Refco bankruptcy – not to mention some so far more anonymous figures – will hear the rap of process servers’ knuckles over the next few weeks after Judge Robert Drain approved an order directing the production of documents “by certain persons.”

Barely a week after telling SPhinX Fund investors that they had no place in his court, the heavily qualified order,  signed Friday, Jun. 16, allows Refco’s Official Committee of Unsecured Creditors to issue subpoenas. Several of the respondents, if and when served, are likely to vigorously assert their “expressly reserved” objection rights up to, and including, those under the Fifth Amendment. Especially as the US Attorneys Office is among the small list of attorneys and consultants – mostly associated with the Official Committee – allowed to see documents produced under the subpoena.

Those covered by the order are alleged to have both information and documents relating to payments or other actions by Refco-related entities, and “events at issue that will be indispensable to the committee’s investigation.” Some of the proposed subpoenas seek records dating to Jan. 1 1995.

The list of individuals and entities covered by the order, with, in some cases, details of information being sought and links to background information:

Arthur Anderson [sic]
The now largely-defunct Andersen was Refco’s auditor until 2002, when “the lead Refco auditor…Mark Ramler, took Refco with him as a client when he left for Grant Thornton.” Andersen “will likely have documents and information relevant to the circumstances relating to the receivables between [Refco] entities and entities affiliated with Phillip Bennett…as well as the manner in which such issues were handled by Refco’s auditors.”

Delta Flyer Fund LLC & Eric M. Flanagan
“Public reports suggest that Delta participated in the Bennett Receivables Scheme at the end of certain of Refco’s financial quarters from 2001 through 2004.”

Dhillon, Sukhmeet “Micky” & Jasdeep Dhillon Trustee MSD Family Trust
Dhillon was the head of Main Street Trading, which was acquired by Refco in 2001.
“Dhillon, or entities affiliated with Dhillon…were recipients of certain insider payments [and] received substantial payments from [Refco] and/or Refco Group Holdings Inc (RGHI)…one of the entities through which Bennett held his ownership interest in Refco.”

Dittmer, Thomas
Dittmer co-founded Refco in 1969, retiring as chief executive officer in 1999. He allegedly received substantial payments from [Refco] and/or RGHI following Refco’s initial public offering in 2005, according to the filing.

Ernst & Young LLP
Refco’s tax preparation firm until early 2004, stopped working for Refco “at about the same time that Refco and Thomas H. Lee Partners were negotiating” the private equity transaction that resulted in Lee taking a substantial ownership stake in Refco. “According to media reports, Ernst & Young’s decision [to stop working for Refco] may have been tied to a dispute...the nature and details of which remain unknown.”

Grady, Stephen
“According to press reports” [scroll down], Stephen Grady, the chief operating officer of Refco’s global derivatives operations, had his responsibilities expanded following the Sep. 2005 announcement of former Refco chief operating officer William Sexton’s intent to retire. Grady allegedly received a substantial payment from Refco and/or RGHI.

Hackl, Thomas
The former Refco executive vice president and member of its management committee was responsible for global asset management, operations and affiliations. Hackl left Refco in 2004, “apparently some time after its leveraged recapitalization” in Aug. 2004. Before joining Refco, was the head of treasury and investment banking at BAWAG and was responsible for its global treasury operations, asset management and private banking, from 1991-2002.

“In addition to his ties with both BAWAG and Refco during the key periods in question,” Hackl allegedly “likely had knowledge of the Bennett Receivables Scheme;” as well, Hackl, Bank Frick and RGHI/Bennett were allegedly “joint investors in certain entities.”

[Bawag recently agreed to pay $675 million to avoid prosecution for its role in the events that led to Refco’s collapse, admitting that its Refco holding, originally said to be just 10 percent, had ballooned to as much as 47 percent through undisclosed agreements with Bennett.  The filing made no mention of Hackl’s friendship with MinusFunds founder Christopher Sugrue (see below), whose online biography proudly claims credit for his role in the Bawag-Refco transaction.]

Kavanagh, Mark
“Mark Kavanagh is the sole member of Suffolk KAV (one of three Suffolk subsidiaries of Suffolk LLC) a company that received a ‘loan’ of $158 million from one or more of the [Refco] entities in order to finance the buyout of the minority shareholders of [Minus]Funds in 2005.”

Unmentioned in the filing are the other roles of Kavanagh, principal of the Irish property developer Hardwicke Ltd, in MinusFunds: he is a director, the brother-in-law of Christopher Sugrue and the employer of Brian Owens who, from Oct. 2004 to Dec. 2005, when he resigned for unstated business reasons, was a director of the SPhinX Funds complex.

Klejna, Dennis
As a former director of enforcement at the Commodity Futures Trading Commission, Klejna’s appointment as general counsel in January 1999 – barely three months after Bennett was named chief executive officer – was widely interpreted as an integral part of a strategy to clean up Refco’s shabby regulatory image. According to the filing, Klejna, who also held the titles of executive vice president and, from Aug. 2005, corporate secretary, “received $6.5 million in a buyout of a profit-sharing agreement in August 2005.”

Levine Jacobs and Co LLC
The Livingston, NJ, accounting firm replaced Ernst & Young as Refco’s tax preparation firm. It was allegedly responsible for preparing RGHI’s taxes for the year ended Dec. 31, 2004, and performed accounting work for Refco.

Lipoff, Eric
Allegedly received “a substantial payment from [Refco] and/or RGHI” in 2004. Lipoff’s name has not previously surfaced in the Refco matter, and the filing gives no indication as to either the amount or reasons for the payments.

McDermott Will & Emery
Counsel for BAWAG Overseas and/or Alinea Holding GmbH “in connection with the disposition of BAWAG Overseas’ 10 percent (sic) equity stake in Refco during the leveraged recapitalization in Aug. 2004.” The international law firm also allegedly represented “certain other entities in connection with their dealings with RGHI.”

McElwreath, Edward & O’Shea, Sean
Edward McElwreath, characterized in news reports as a consultant at Emele Ltd, was awarded $3.5 million by an NASD arbitration panel shortly before Refco’s collapse. His claim, against Refco Securities LLC – Refco’s regulated broker/dealer affiliate – and Refco Group Ltd alleged that he was owed a $22 million finder’s fee for introducing Refco to Thomas H. Lee Partners. O’Shea, who represented McElwreath in the arbitration, was quoted – originally by The New York Post - as saying that, during the course of the proceedings, it was disclosed that Robert Trosten, Refco’s former chief financial officer, collected a $45 million severance package when he resigned in Oct. 2004.

Murphy, Joseph
A Refco executive vice president responsible for global marketing, and head of “Refco Global Futures since Mar. 1999…Murphy received between $9.5 and $13.7 million from [Refco] and/or RGHI in a buyout of a profit-sharing agreement in Aug. 2005” and “over $8.1 million in compensation from 2003 to 2005.”

Mutterer, Frank
Controller of Refco Group Ltd, and allegedly the recipient of a substantial payment, the size of which was not disclosed in the filing, from [Refco] and/or RGHI.

PricewaterhouseCoopers LLP
“PwC advised Refco on financial reporting for more than a year prior to Refco’s IPO in August of 2005. Recent news reports state that PwC advised Refco with respect to a debt offering and also subsequently on financial reporting as its status changed from a private to a public company.”

Sexton, William M.
Sexton, who joined Refco in 1999, became chief operating officer in Aug. 2004 and “received between $7 and $9 million in a buyout of a profit-sharing agreement in August 2005 [and] over $4.2 million in compensation from 2003 to 2005.” The filing does not mention that Sexton was named to replace Bennett as chief executive officer in the immediate aftermath of the disclosure of the $430 million receivable, just days after Refco announced, on Sep. 26, 2005, that Sexton would resign to pursue other interests.

Silverman, Philip
“Corporate secretary of RGHI, the entity controlled by Phillip Bennett at the center of the Bennett Receivables Scheme,” Silverman was also the corporate secretary of  Refco Alternative Investments LLC. “Alleged by certain press reports” to have been a Bennett confidante, Silverman was “apparently put on leave at or about the same time [Refco] terminated the employment of Bennett and Santo Maggio.”

Sugrue, Christopher Clancy
’nuff said. For now.

Weaver, David
Chief administrative officer of Refco Capital Markets in 2002, the filing alleges that he “will likely have information and documents concerning the Bennett Receivables Scheme [and] “is also likely to have information and documents relating to other events at issue.”

Notes

• Quoted material is from Supplemental Motion of Official Committee of Unsecured Creditors for Order..Directing Production of Documents by Certain Persons, filed in US Bankruptcy Court, May 23 2006. Neither the motion, nor the the Jun. 16, 2006 order, allege wrong-doing by the subpoena recipients.
• Links have been added to news reports believed to be, or substantially similar to, those referred to in the filing, and other information sources.