Austrian bank Bawag PSK Group became the first defendant to settle claims concerning failed futures brokerage Refco.
In one of a flurry of separate announcements, the U.S. Attorney’s Office for the Southern District of New York stated that it would not prosecute the bank for its role in a scheme to hide receivables. Under the deal, Bawag agreed to pay at least $675 million, including $337.5 million to be distributed to victims of the Refco fraud.
The Securities and Exchange Commission announced that Bawag consented to the entry of a final judgment enjoining it from violating the antifraud provisions, and from aiding and abetting violations of the periodic reporting provisions, of the federal securities laws. The SEC accused Bawag of helping the failed brokerage “conceal hundreds of millions of dollars in debt owed to Refco by an entity controlled by Refco’s chief executive officer.”
The SEC also alleged that Bawag had connections with Refco, including an equity interest, and that bank executives knew that the brokerage had misstated its balance sheet. The bank “knowingly aided and abetted Refco in its deception of investors who purchased Refco securities,” asserted the commission.
And law firms representing institutional plaintiffs announced that Bawag agreed to pay $108 million to Refco stock and bond purchasers, with the possibility of an additional $32 million depending on a possible future sale. According to a press release from the firms of Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann, by helping to hide receivables, Bawag enabled Refco to complete a $600 million bond offering in August 2004 and a $583 million IPO in August 2005, and caused investors to pay excessive prices for Refco’s securities in subsequent open-market transactions.
Last October, one week after reporting a previously undisclosed $430 million debt by former CEO Phillip Bennett, Refco filed for bankruptcy, the law firms also noted.