Troubled commodities broker Refco Inc. on Monday said it is discussing the sale of its futures brokerage business, the heart of the company, to a group of investors led by private equity firm J.C. Flowers & Co.
The company said it is in “advanced negotiations” to sell Refco LLC, Refco Overseas Ltd., Refco Singapore Pte. and certain related subsidiaries and other assets. A Refco spokeswoman had no further comment; a spokesman for J.C. Flowers could not be immediately reached for comment.
Refco’s financial situation has deteriorated quickly following the disclosure last week that former Chief Executive Phillip R. Bennett hid a $430 million debt from the company’s books. Bennett was placed on leave and was subsequently arrested on federal securities fraud charges.
The company last week froze customer accounts in its Refco Capital Markets offshore broker subsidiary until next week, and said Thursday it would liquidate its Refco Securities LLC subsidiary, which trades stocks, bonds and credit products.
While Bennett repaid the $430 million, plus interest, before his arrest, the company struggled last week as its customers — primarily hedge funds and institutional investors — quickly sought other companies to service its commodities and futures accounts.
J.C. Flowers & Co., formed in 2000 by former Goldman Sachs Group Inc. investment banker Christopher Flowers, specializes in buying out troubled financial companies. J.C. Flowers participated in the 2001 buyout of Shinsei Bank Ltd., led the group that purchased Dutch bank NIB Capital NV for $2.5 billion in August, and last month agreed to buy the wholesale unit of insurer Marsh & McClennan Co.
Refco’s stock remained halted Monday on the New York Stock Exchange as regulators there determine whether the company has provided enough information to investors to resume trading, or should instead be delisted. The company’s bonds, which dropped precipitously last week, rallied on word of the Flowers buyout talks.