From: Reuters
Published February 20, 2008 07:49 PM

Former Refco CFO pleads guilty to fraud

By Edith Honan and Paritosh Bansal

NEW YORK (Reuters) - The former chief financial officer of Refco pleaded guilty on Wednesday to a $2.4 billion fraud in a criminal case stemming from the 2005 collapse of the futures and commodities broker.

Former CFO Robert Trosten's plea came less than a week after former Chief Executive Phillip Bennett also pleaded guilty to fraud and less than a month ahead of their trial. The case had drawn comparisons to the accounting fraud that drove telecommunications company WorldCom Inc into bankruptcy.

Trosten, 38, pleaded guilty to conspiracy, securities fraud, bank fraud, wire fraud and money laundering charges during a hearing before U.S. District Judge Naomi Buchwald in Manhattan federal court.


"I take full responsibility for my conduct and my actions," Trosten told the judge, as his voice broke. "I apologize to my family and those I have harmed by my conduct, which I sincerely and deeply regret."

Bennett, Trosten and former President Tone Grant were scheduled to go to trial in March. The case was investigated by the U.S. Attorney's Office in Manhattan, along with the U.S. Postal Inspection Service.

As part of his guilty plea, Trosten has agreed to serve as a witness in trials of other defendants in the case.

Refco sustained hundreds of millions of dollars of losses through trading for itself and its customers, prosecutors said. Trosten and others transferred many of those losses and made them appear as debt owed to Refco by a holding company that was controlled by Bennett, prosecutors added.

Refco and 23 affiliates filed for Chapter 11 bankruptcy protection on October 17, 2005.

Prosecutors have noted that on October 10, 2005, Refco issued a press release saying in substance that it had discovered that it was owed a debt of about $430 million by an entity controlled by Bennett.

Refco subsequently liquidated its operations.

In December, Santo Maggio, former president of the Refco Capital Markets unit, pleaded guilty in the case. Maggio also agreed to cooperate with U.S. authorities in their investigation of fraud at the company.

The same month, prosecutors, along with postal inspectors and the SEC, filed charges against Joseph Collins, a former outside lawyer for Refco. He has pleaded not guilty.

On Tuesday, the SEC also sued Bennett, accusing him of orchestrating the fraud that led to the company's demise.

Trosten is next scheduled to appear in court in February 2009.

"He deeply regrets his involvement in these fraudulent activities, and is attempting to rectify the misjudgment that he made ... by cooperating with the government," his lawyers said in a statement.

(Editing by Toni Reinhold, Richard Chang)

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