Former Refco chief executive, 59-year old Phillip Bennett, has pleaded guilty in the Federal District Court of Manhattan to charges including wire fraud, bank fraud, money laundering and making false Securities and Exchange Commission filings.
“I knew failing to disclose these filings was wrong. I know I was wrong. I deeply regret it,” Bennett reportedly told the court. “I take full responsibility for my actions and would like to apologise to my family and all those who were harmed by my conduct.”
Bennett’s actions were part of an elaborate scheme to hide Refco losses, which stemmed in part from the 1997 Asian financial crisis and eventually led to a $245 million hit for Thomas H. Lee Partners.
The private equity firm agreed to acquire Refco in 2004 for $2.25 billion, then tripled the value of its stake after it took Refco public in 2005. Shortly after the initial public offering, however, THL discovered that Bennett owed the commodities brokerage $430 million in off-the-books receivables; a massive scandal ensued, triggering numerous lawsuits and criminal charges. Robert Trosten, former Refco CFO, and Tone Grant, former Refco president, are scheduled to face trial on 17 March.
Bennett’s 20-count indictment carries a maximum prison term of 315 years, which the judge in the case, Naomi Reice Buchwald, reportedly said Friday is not abnormal for “any defendant who was older and who was facing sentencing in the post-Enron era”.
She noted that for such defendants “their residence in prison is possibly the last residence they’re ever going to have”, according to an Associated Press report.
Bennett, a UK citizen, is on house-arrest in New Jersey until his sentencing, scheduled for 20 May. In addition to prison time, he will have to pay the government $2.4 billion, though his lawyer has said Bennett has only $20 million in assets.
THL, itself a defendant in at least two Refco-related lawsuits, has maintained it was “one of the victims of a carefully concealed fraud”. The private equity firm sued Refco’s former management for $245 million, as well as the law firm that represented Refco during the acquisition process for an additional $245 million. THL also successfully sued Bawag, the Austrian bank that helped Refco to manipulate its balance sheet, for at least $84 million.