Dad flipped this story my way a few days ago. Looks interesting.
A crisis in the world’s hedge fund industry was in prospect last night after one of the world’s largest derivatives brokers was forced to freeze trades potentially worth billions of pounds.
The move by Refco, which acts for many leading speculative investors both on Wall Street and in the City, followed the discovery of accounts irregularities at the firm earlier this week and the issue of fraud charges against its former chief executive Phillip Bennett.
A senior Wall Street executive who attended a meeting where Refco was pitched said that the biggest concern was that it cleared transactions for many small customers in the United States and overseas whose practices might pose a risk to Wall Street firms (emphasis mine).”I think there’s reason to believe that REFCO is the smoking gun the industry has been dreading. Wall Street wouldn’t touch REFCO with a ten foot pole a few years ago because of “risky practices” of some of their overseas and domestic customers, so the management laid off the risk on the investing public instead. Nice. And the SEC let them.
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