WASHINGTON - Two days before Refco Incorporated's unregulated brokerage business froze its customers' accounts, a client with ties to Refco's top executives stormed into the unit's New York office and hectored employees into returning $312 million, the employees say in court documents.
The client, Christopher Sugrue, is chairman of PlusFunds Group Incorporated, a fund manager that promises investment returns that track the performance of several hedge funds. His actions in the days after an accounting scandal erupted at Refco last October are now the focus of a lawsuit has rattled several hedge funds.
The lawsuit, filed by Refco's unsecured creditors in U.S. Bankruptcy Court in Manhattan, seeks the return of the $312 million to Refco Capital Markets. It asserts Mr. Sugrue's conduct was "inequitable," and that Plus-Funds gained an unfair advantage over other RCM creditors.
A spokesman for Sugrue and Plus-Funds, Ed Sweeney, declined to comment on the lawsuit. PlusFunds, which manages more than $2.5 billion in assets for hedge funds and other investors, told its clients in a letter recently that the bankruptcy court had frozen most of the assets of its Sphinx Managed Futures Fund because of the Refco creditors' lawsuit.
Refco's creditors committee, which filed the lawsuit, on Monday asked U.S. Bankruptcy Judge Robert Drain for a summary judgment in its favor. Under bankruptcy law, a judge may nullify payments made by an insolvent company in the 90 days before its bankruptcy filing, if the payment was intended to favor one creditor over others.
The creditors committee cited affidavits filed by Refco employees who described how Mr. Sugrue got them to transfer cash that PlusFunds had held in RCM. The cash was transferred on October 12, 2005, to Refco LLC, a regulated Refco unit. It was then moved to a Lehman Brothers account on the day Refco filed its Chapter 11 bankruptcy petition - October 17.
RCM's treasurer at the time, Matthew Hreben, said in an affidavit that Mr. Sugrue paid him an unannounced visit on October 11 - the day after Refco announced that the company's chief executive, Phillip Bennett, had hidden $430 million in bad debt. Mr. Sugrue had been a senior vice president at Refco from 1993 to 1998, and had maintained close business ties with Refco after leaving the company. But he wasn't known to Mr. Hreben.
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