The former chief executive of Refco Inc., one of the world’s biggest commodities brokerages, was charged with securities fraud Wednesday.
Phillip R. Bennett was charged in a criminal complaint unsealed in U.S. District Court in Manhattan. A day earlier, Refco announced that a $430 million debt to the company owed by a firm controlled by the ousted chairman and chief executive was hidden through secret transfers to an unnamed customer account.
On Monday, Refco said it must restate earnings back to 2002 and delay filing its next quarterly report, originally scheduled for next week.
Bennett — who was said to have repaid the $430 million with interest Monday — was put on leave that day by Refco’s board, and Chief Operating Officer William Sexton, who was due to retire, was tapped as the new CEO.
The criminal charge accused Bennett of hiding the existence of hundreds of millions of dollars of related party transactions between Refco and a company controlled by Bennett from investors from 2004 until this month.
According to The Wall Street Journal, Bennett used a New Jersey hedge fund, Liberty Corner Capital, to hide the $430 million in debts from other customers, which were considered unlikely to be repaid and would not be considered revenue on Refco’s books.
Liberty Corner executive Terry Pigott did not return calls from The Associated Press to his office and home. He told the Journal he was not involved in Refco’s problems.
Because Bennett hid bad debt in a separate company and caused Refco’s revenue figures to be higher than they actually were, federal prosecutors accused Bennett of causing Refco to file a false and fraudulent registration statement with the Securities and Exchange Commission.
Bennett’s attorney, Jack Weinberg of Herrick, Feinstein LLP, did not return a call seeking comment Wednesday. Bennett was due to appear in court later in the day.
On Tuesday, the New York-based Refco said it had voluntarily contacted the SEC, the U.S. Commodity Futures Trading Commission, the New York Stock Exchange and other regulators, and was cooperating with their inquiries.
The company, which went public in August, has some 2,400 employees in 14 countries. It reported earnings of $176.3 million for the fiscal year ended last February, down from $187.2 million a year earlier.
When the transactions were disclosed to the public, the stock price plummeted, leading a loss to investors of more than $1 billion, U.S. Postal Inspection Service Inspector Heather Tucci said in the complaint.
Shares of Refco tumbled $2.61, or 19 percent, to $11.24 in afternoon trading on the New York Stock Exchange. The stock has dropped nearly 61 percent since Bennett’s activities were made public.
The company is also facing a potential class action suit from investors who bought Refco stock since its initial public offering on Aug. 11.