Refco investors ask court to force Sphinx, PlusFunds to produce information on settlement agreement

By Caroline Salls

Pittsburgh, May 31 - Refco, Inc. investors Merrill Lynch, Raymond James and Rydex asked the U.S. Bankruptcy Court for the Southern District of New York to force Sphinx Managed Futures Fund SPC and PlusFunds Group Inc. to comply with discovery requests and subpoenas in connection with a settlement agreement with Refco's official committee of unsecured creditors.

According to a Tuesday court filing, although Sphinx is duty-bound to represent the investors' interests under the settlement agreement, it is seeking to sacrifice those interests "in the service of the utterly illegitimate interests of its board of directors and their allies at Refco, the very entity that was supposed to have been Sphinx's adversary in the underlying preference litigation."

After repeatedly reassuring the investors that it would vigorously protect their interests in the preference action, "Sphinx unceremoniously ditched all of its pleaded defenses on the eve of the summary judgment hearing in the preference action," the motion said.

"Worse yet, it announced that, instead of simply conceding defeat in that action, it was also abandoning its claim for about half its value."

The investors said Sphinx's counsel conceded that Sphinx entered into the proposed settlement "for utterly illegitimate reasons - to avoid scrutiny of alleged wrongdoing by one of its directors and by PlusFunds insider Christopher Sugrue and because, in flat contradiction of the letters its representatives at PlusFunds had sent investors over the course of the preference action, Sphinx and PlusFunds had furtively channeled $110 million to select investors in three Refco-affiliated funds ahead of the filing of the preference action, purportedly rendering Sphinx unable to satisfy a judgment in that action."

The investors said they have been "thoroughly stonewalled" in their attempts explore these issues.

Refco, a New York-based commodities brokerage company, filed for bankruptcy on Oct. 17, 2005. Its Chapter 11 case number is 05-60006.

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