Saturday, October 15, 2005

Futures Firm Available, Really Cheap

The tidal wave caused by the accounting fraud at Refco Inc. appears to be on the verge of swamping the firm.  The company announced that its largest unit, Refco Securities LLC, had begun unwinding its positions, which means it is in the process of shutting down (Bloomberg story here).  The SEC has prohibited withdrawals of capital from Refco's securities and clearing units to prevent a run on the firm, and the the Wall Street Journal reports (here) that the CFTC has approached other investment companies, including Goldman Sachs, about taking over the firm's customer accounts.  This brings back memories of the days when the FDIC and Office of Thrift Supervision would swoop in and take over a failing bank on a Friday afternoon in the hope of reopening it on Monday under a new name.  Once Refco's lenders pull the plug on loans to the firm, the entire company will go into liquidation fairly quickly because it cannot survive without ready financing.  It is still a bit hard to comprehend that the conduct of one person could crater a large financial operation in only one week, but then Nick Leeson took down Barings, and he wasn't even 28-years old. (ph)

Civil Enforcement, Fraud | Permalink

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