LAWFUEL – Legal Announcement Service – MICHAEL J. GARCIA, the United States Attorney for the Southern District of New York, and RON WALKER, Inspector-incharge of the New York Office of the Postal Inspection Service, announced today that SANTO C. MAGGIO — former Executive Vice
President of Refco, the large New York-based financial services
company, and the former President and Chief Executive Officer of
Refco Securities LLC, a Refco subsidiary — pleaded guilty today
to a four count felony Information.
MAGGIO, 56, of Naples,
Florida, pleaded guilty, before United States Magistrate Judge
RONALD L. ELLIS in Manhattan federal court, to agreeing with
PHILLIP R. BENNETT, the former Chief Executive Officer of Refco,
ROBERT C. TROSTEN, the former Chief Financial Officer of Refco,
and TONE N. GRANT, one of Refco’s former owners and former
President, to commit securities fraud, wire fraud, bank fraud,
and money laundering, and to make material misstatements to
auditors and false filings with the SEC; he also pleaded guilty
to substantive charges of securities fraud and wire fraud.
According to the Information filed in this case and statements
made during MAGGIO’s guilty plea proceeding:
Refco offered securities, derivatives and commodities
brokerage services to investors. In August 2004, Thomas H. Lee
Partners, L.P., purchased a majority interest in Refco in a $1.9
billion leveraged buyout transaction. In connection with that
transaction, Refco sold approximately $600 million in bonds to
the public, borrowed approximately $800 million from a syndicate
of banks, and received approximately $500 million in cash from
Thomas H. Lee Partners. A year later, in August 2005, Refco
conducted an initial public offering (IPO) of its stock, raising
approximately $583 million from the public. Refco’s stock was
then listed on the New York Stock Exchange.
On October 10, 2005, Refco issued a press release
announcing that it had discovered that it was owed a debt of
approximately $430 million by an entity controlled by BENNETT.
Following release of this information, the market price of Refco
stock plummeted, and Refco’s stock was subsequently delisted by
the New York Stock Exchange. Refco, Inc. and many of its
subsidiaries filed petitions in bankruptcy on October 17, 2005.
From as early as the mid-1990s, Refco, which was then
privately held and controlled in part by BENNETT and GRANT,
sustained hundreds of millions of dollars of losses through its
own and its customers’ trading. In order to hide the existence
of those losses, BENNETT and GRANT transferred many of them to
appear as a debt owed to Refco by Refco Group Holdings, Inc.
(“RGHI”), the holding company that controlled Refco and was, at
times, controlled by BENNETT and GRANT.
MAGGIO, BENNETT and others directed a series of
transactions, every year from 1999 through 2005, to hide the RGHI
receivable from Refco’s auditors and others by temporarily paying
down the receivable from RGHI over Refco’s fiscal year-end and
replacing it with a receivable from one or more other entities
not related to BENNETT. At every fiscal year-end (and starting
in 2004, every fiscal quarter-end), MAGGIO, BENNETT and others
directed transactions that turned the debt owed to Refco from
RGHI into a debt owed to Refco by a Refco customer. Shortly
after each fiscal year- or quarter-end, these transactions were
unwound, returning the debt to RGHI.
In addition, the Information alleges that MAGGIO and
BENNETT fraudulently distorted Refco’s books and records by
engaging in revenue padding and expense shifting transactions.
Among such transactions described in the Information are:
At least approximately $38 million in artificial income
consisting of inflated interest charged on the debt
owed by BENNETT’s holding company to Refco;
At least approximately $13 million in profits from fake
U.S. Treasury trades between Refco and BENNETT’s
holding company; and
At least approximately $28 million in profits from fake
foreign exchange trades between Refco and BENNETT’s
holding company.
MAGGIO pleaded guilty to one count of conspiracy, one
count of securities fraud (related to Refco’s offering of $600
million in registered notes in connection with the leveraged
buyout transaction), one count of securities fraud (in connection
with Refco’s August 2005 IPO), and one count of wire fraud (in
connection with MAGGIO and BENNETT’s misleading Thomas H. Lee
Partners).
The charges in the Information and potential maximum
penalties are as follows:
Count Charge Penalty
1 Conspiracy To Commit
Securities Fraud, Wire
Fraud, Bank Fraud, To
Make Material
Misstatements To
Auditors, To Make False
Filings With The SEC, to
commit Bank Fraud and
Money Laundering
5 yrs prison, fine of
the greater of $250,000
or twice the gross gain
or loss from the
offense, 3 yrs
supervised release
2-3 Securities Fraud 20 yrs prison, fine of
the greater of $5
million or twice the
gross gain or loss from
the offense, 3 yrs
supervised release
4 Wire Fraud 20 yrs prison, fine of
the greater of $250,000
or twice the gross gain
or loss from the
offense, 3 yrs
supervised release
BENNETT, GRANT, and TROSTEN are currently scheduled to
go to trial on March 17, 2008 before the Honorable NAOMI REICE
BUCHWALD. JOSEPH P. COLLINS, Refco’s former principal outside
counsel, was indicted yesterday on related charges; his case was
assigned to the Honorable LEONARD B. SAND. The charges contained
in these indictments are merely accusations, and the defendants
are presumed innocent unless and until proven guilty.
MAGGIO’s case was assigned to United States District
Judge SIDNEY H. STEIN. His sentencing is scheduled for May 9,
2008, at 2:00 p.m.
The case was investigated by the Criminal Investigators
of the Securities and Commodities Fraud unit of the U.S.
Attorney’s Office, along with the USPIS. Mr. GARCIA, a member of
the President’s Corporate Fraud Task Force, praised the efforts
of those investigators and thanked the Securities and Exchange
Commission and the Commodity Futures Trading Commission for their
assistance in the case.
Assistant United States Attorneys NEIL M. BAROFSKY,
CHRISTOPHER L. GARCIA, and RUA KELLEY are in charge of the
prosecution.
07-314
