Years after its collapse, Refco continues to make news. Yesterday, an appeals court overturned the conviction of an attorney, Joseph P. Collins, who had been the chief outside counsel for the futures brokerage and was found guilty of aiding the company’s scheme to hide millions in debt and mask its true financial condition. When the fraud was discovered, Refco filed for bankruptcy, and its assets later were sold to Man group, which later spun them off as MF Global.
Collins was convicted largely on the basis of testimony from a former Refco executive who cooperated with federal prosecutors. Similarly, in the MF Global investigation, high-profile prosecutions seem likely if the government finds a cooperating witness.
News reports today say the investigation of MF Global’s collapse and the disappearance of customer funds is gathering pace but has been hampered by the firm’s chaotic back-office records. As a New York Times article today notes:
Federal authorities have reviewed internal MF Global e-mails that instructed Ms. O’Brien to transfer roughly $200 million to JPMorgan Chase to satisfy an overdrawn account, though there is no indication that she knowingly transferred customer money. MF Global’s sloppy records may have obscured the fact that staff was dipping into customer cash to cover the firm’s own needs.
Poor record-keeping at MF Global likely reflects the broader weaknesses in risk management and reporting that carried over from Refco, an issue I addressed in an earlier post a few weeks ago. These issues are likely to put the company’s former auditors, Pricewaterhouse Coopers, in an uncomfortable spot in the weeks to come. (See this Forbes piece for more on the issues facing PwC.)