Bank of America and Credit Suisse have settled with a number of victims of former commodities, futures and foreign exchange broker Refco. The firm has become one of the most notoriously famous cases of fraud in the industry after it was announced in October 2005 that the company’s CEO Philipp Bennett had hidden $430 million worth of bad debts from auditors and investors.
In the aftermath of the bankruptcy of the company a group of victims started legal proceedings against Bank of America and Credit Suisse alleging that the banks aided the accounting fraud at Refco.
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Yesterday the case was closed with an undisclosed settlement after the $1 billion worth scam that was pulled by Refco. A group of plaintiffs received approval for the deal from the Grand Court of the Cayman Islands. The group of offshore registered hedge funds under the name SPhinX funds was valued at $2 billion before the bankruptcy of Refco pushed them into insolvency.
According to the allegations in the case the funds in the investment portfolios of the companies were mixed with Refco’s own funds which resulted in the bankruptcy of the funds due to their funds ultimately being used to repay the broker’s creditors.
The settlement puts an end to a long legal battle for the companies whose business has been lost due to the Refco fraud scandal. Back in 2003, the company partnered with FXCM and took a 35 per cent stake in the forex brokerage. After a licensing agreement FXCM’s software was used by clients of Refco. In the aftermath of the collapse of the firm in 2005, the forex brokerage was left entrenched in the bankruptcy proceedings for some time.