SDNY Authorizes the Closing of Remaining Refco Capital Markets Chapter 11 Cases

NEW YORK, Jan. 30, 2020 /PRNewswire/ -- The Plan Administrator for Refco, Inc. ("Refco"), the Plan Administrator for Refco Capital Markets, Ltd ("RCM") and the Litigation Trustee, appointed pursuant to the Modified Joint Chapter 11 Plan of Refco, Inc. and Certain of Its Direct and Indirect Subsidiaries [Doc. No. 3948], confirmed on December 15, 2006, (the "Plan"), today announced that the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") has approved an Order authorizing the closing of the remaining Chapter 11 cases of the Refco Debtors. Final distributions will be made by the Refco Plan Administrator to former RCM creditors and the final wind-down of the Refco Debtors will be completed in the next few months.

The closing of these cases will end one of the largest international financial company bankruptcies in history— involving 26 affiliated debtors, with insolvency proceedings in New York, Bermuda, Singapore and the United Kingdom. It was also one of the largest cases where a Chapter 11 trustee was appointed— a necessity for administering Refco's unregulated securities broker, RCM. The Refco Debtors, and some of their non-debtor affiliates, provided execution and clearing services for exchange-traded derivatives and operated as a major provider of prime brokerage services in the fixed income and foreign exchange markets. In 2004, Refco was responsible for the most volume of customer transactions in the Chicago Mercantile Exchange, the largest derivatives exchange in the United States. The sale of Refco's regulated commodities futures merchant business, Refco LLC, was subject to a separate Chapter 7 proceeding.

The Chapter 11 cases were filed after Refco's former president was arrested upon discovery of Refco's engagement in a multi-billion-dollar fraud. Federal prosecutors indicted and convicted four former officers and directors, in addition to outside legal counsel. Other former officers pled guilty to crimes involving securities fraud, mail fraud, bank fraud and related charges. The cases generated a massive litigation war among private equity funds, hedge funds, investment banks, commercial banks, broker-dealers, foreign exchange traders, big four accounting firms, prominent law firms and former officers and directors of Refco. There were multiple civil litigation matters, a securities class action and disputes in numerous foreign countries.

At the time of its filing, RCM held over $2.1 billion in liquid and illiquid debt and equity securities of over 1,200 issuers located throughout the world. In addition, there was a complex web of intercompany claims among the Refco Debtors and certain non-Debtor foreign and domestic subsidiaries. The Refco Debtors were unable to schedule claims due to the unreliability of their books and records, but a total of $9.69 billion in asserted claims were filed against the Debtors. $4.32 billion of the claims were expunged and $5.37 billion were allowed.

An aggregate of $4.8 billion was recovered, including from the sale of illiquid securities. Below are the total distributions from recoveries made by the Debtors and the two litigation trusts, (including approximately $2.2 million to be distributed as part of the final wind-down, as a percentage of Allowed Claims) compared to the estimated recoveries outlined in the Disclosure Statement: 

Over 99% of distributions were made on or before December 2015. The last few remaining open matters have been recently resolved, permitting the conclusion of these cases. Any funds that remain unclaimed and unreserved after the final distribution— up to $150,000— will be donated to The Honorable Tina Brozman Foundation ("Tina's Wish").

Harrison (Jay) Goldin, the Founder of Goldin Associates LLC ("Goldin Associates"), a New York based financial and advisory consulting firm, was appointed by the independent directors as Chief Executive Officer of the Refco Debtors after the former president was arrested. Goldin served in that capacity through confirmation of the Plan, and Goldin Associates served as financial advisor to the Debtors through Plan Confirmation. Marc S. Kirschner, currently a Senior Managing Director of Goldin Associates, was appointed Chapter 11 Trustee of RCM in April 2006 and, upon Plan Confirmation, as RCM Plan Administrator and Trustee of the Litigation Trust and Private Action Trust.

Professionals from Berkeley Research Group ("BRG"), a global consulting firm, and their predecessor firm, Capstone Advisory Group, served as the Refco Plan Administrator and managed Refco Debtors as well as advised the RCM Chapter 11 Trustee, the RCM Plan Administrator and the Trustee to the Litigation and Private Action Trusts.

An advisory board for the Plan Administrator and Trustee acted throughout these cases. Its Members included: Salvatore Barbatano, a bankruptcy lawyer based in Michigan; Paul Bran, a bankruptcy lawyer based in Washington, D.C., George Boggs, a corporate lawyer based in Washington, D.C.; Ira Greene and Jeffrey Friedman, both bankruptcy lawyers based in New York City; Richard Dietz, founder of VR Capital based in London; and Carlos Abadi, founder of DecisionBoundaries Inc. based in New York City. 

"Since their inception, the Refco bankruptcy cases have been unusual," said Kirschner. "The combination of large assets and debts, numerous issues of first impression, complex fraud, worldwide impact and high-stakes legal battles among various parties in interest presented significant challenges, but excellent work by the advisory board and all professionals resulted in a successful conclusion. The cases are an excellent illustration of the human and monetary costs of a meltdown caused by massive fraud – numerous civil and criminal investigations (including against prominent lawyers and professional firms), lost jobs, enormous legal and professional fees and third parties potentially responsible for catastrophic losses."

"This was an intense effort by so many professionals in piecing together a tremendously fractured company that required an enormous forensic exercise to unravel," said Galfus, Managing Director of BRG. "However, just unraveling the story wasn't enough, as the estates then needed to go and recover the estates' pilfered assets. This was likely the most challenging professional experience of my and other BRG professionals' career. I'm incredibly proud to have played a role over the last 12 years in bringing about this outstanding outcome for all the constituents."  

About Goldin Associates

For almost 30 years, Goldin Associates, LLC has been recognized as a leading financial advisory firm focused on distressed situations, valuation analyses and fiduciary roles. Goldin works with companies, creditors and equity holders to find solutions that maximize value amidst balance sheet and operational changes. Goldin provides expert analyses and testimony on various financial matters, including relating to solvency, causation and damages. Goldin also regularly serves as a trusted independent, appointed by private parties, courts or regulatory bodies, to conduct forensic financial reviews, pursue claims, and ensure compliance with applicable government standards.

SOURCE Refco, Inc.