Refco U.S. Trustee granted request to appoint examiner to investigate fraud, mismanagement

By Caroline Salls

Pittsburgh, March 17 - Refco, Inc.'s U.S. Trustee's request for appointment of an examiner to investigate allegations of fraud and mismanagement in the company's Chapter 11 case was granted Thursday, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

On Friday, the examiner asked the court to approve the appointment of Joshua R. Hochberg as the examiner.

The U.S. Trustee's request for reconsideration of the court's order denying appointment of a Chapter 11 trustee was denied Thursday.

The U.S. Trustee will be responsible for appointing the examiner, and the court said the examiner must develop a work plan and budget in consultation with the company and the official committee of unsecured creditors before beginning the investigation.

The examiner will investigate any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the company's management and the existence and value of claims by the estate against past and present officers, directors, employees and the company's accountants, financial advisers, investment bankers, financial institutions and attorneys.

The U.S. Trustee's motion to appoint a Chapter 11 trustee to investigate claims of pre-bankruptcy misconduct by management and to determine if the estate can recover damages related to the alleged misconduct was denied on Jan. 11 with the condition that the current members of the board of directors be removed and replaced with at least one independent director.

According to the motion for appointment of a Chapter 11 trustee, Refco experienced serious and rapid customer departures and losses of assets after former chief executive officer and chairman Phillip R. Bennett was charged with criminal securities fraud after he failed to disclose that a company he controlled, Refco Group Holdings, Inc., owed Refco $430 million.

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

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