Former Refco CFO Seeks $10.6 Million

One-time CFO says the bankrupt brokerage owes him for the role he played with creditors.
Stephen TaubNovember 20, 2006

A former Refco finance executive who has taken credit for helping the company’s creditors obtain more than $500 million in a settlement from a major Austrian bank claims he is owed $10.6 million from his former employer, according to the Associated Press. Gerald Sherer had served as chief financial officer of Refco, the one-time commodity brokerage giant, which collapsed shortly after its 2005 initial public officering due to an accounting scandal.

Its former chief executive, Phillip Bennett, was accused of hiding $430 million in bad debt, according to the AP. Refco’s creditors alleged that Bank fuer Arbeit und Wirtschaft AG, or Bawag, Austria’s fourth-largest bank, helped him hide the bad debt, according to the report. Robert C. Trosten, another former CFO, was charged with helping Bennett in his alleged scheme.

At the time of the bankruptcy, Sherer was one of the few executives who remained with the company. In June, reported that Bawag agreed to pay $675 million in a global deal for its role in the scheme to hide receivables as part of a settlement with the U.S. Attorney’s Office for the Southern District of New York, which also agreed not to prosecute the bank. According to the AP, Sherer helped Refco and its creditors conduct an investigation that implicated Bawag.

In April, Refco said in a securities filing that it fired Sherer. But the former CFO claims in papers filed with the U.S. Bankruptcy Court in Manhattan that Refco owes him $10.6 million, according to the AP. The wire service noted that he filed an administrative claim against the company, stressed that these kinds of claims are typically paid in full if recognized by the company and a bankruptcy judge.

The sum includes at least $4.5 million in severance pay plus bonuses that Sherer claims he was entitled to under an employment agreement. “If it were not for Sherer’s efforts, the (Refco) creditors’ committee would not have been able to obtain the Bawag settlement, as Sherer was the one who first identified, collected and interpreted the underlying facts behind the claims against Bawag,” Sherer’s attorneys said in court papers, according to AP. They asserted that the settlement would have been “substantially less,” according to the report.

Sherer also stressed in court papers that “no allegations of wrongdoing or other inequitable conduct” were made against him by the new managers. On the contrary, he said, his work was “very much appreciated by the debtors and their counsel.” The former finance chief, however, was one of several top Refco executives named as defendants in a class-action lawsuit.

The The Wall Street Journal had reported earlier this year that Sherer’s office took credit for raising questions about Refco’s books after the August 2005 IPO that led to an entity controlled by Bennett, citing people close to the company.

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