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Man Group Wants To Buy Refco Unit

by Glen Shapiro,, New York

04 November 2005

Despite hedge fund giant Man Financial's denial in October that it had any interest in collapsed futures house Refco, it was reported yesterday that the group has entered into a non disclosure agreement with Refco, which indicates that a deal is in progress between the two firms.

Interactive Brokers Group has also said that it will enter a confidentiality agreement with Refco; and an investor group led by futures operator TradeLink LLC is reported to have signed a non disclosure pact with Refco.

In October, Man Group said: "Contrary to market speculation, Man Group confirms that it is not currently in discussions with Refco or its advisers regarding a Refco acquisition." The Group also denied that Man has any "direct financial exposure" to Refco.

The problem for any buyer of Refco or part of it will be the swarm of litigation lawyers buzzing around the company's partly bankrupt remains. Class actions of all descriptions have either been launched or are in preparation, and many individual suits have been aimed at Refco's assets.

As just one example, two Rogers funds, Rogers Materials Fund and Rogers International Raw Materials Fund filed a $362 million claim on October 24 requesting an immediate return of their cash and securities from Refco Capital Markets. The funds allege that their assets were improperly transferred from segregated accounts to now-bankrupt Refco Capital Markets, so that Rogers is no more than one amongst many creditors in bankruptcy proceedings. Refco denies that it improperly transferred the Rogers funds’ assets from its regulated futures arm to the prime brokerage unit.

Another problem for any buyer is the attitude of the regulators. Apart from investigations launched by the SEC and Federal prosecutors, the Commodity Futures Trading Commission has objected to some aspects of the terms outlined for the auction of Refco's commodities and futures arm.

In a filing in the US Bankruptcy Court in Manhattan, CFTC attorneys wrote: "While we do not intend to suggest anything negative about the conduct of the firm, no person or company is above the law. The commercial sale of a business cannot be premised on a grant of immunity from ordinary law enforcement."

Formal bids for the futures unit - the main worthwhile remaining asset of Refco - are due in to the Court tomorrow, and a court-supervised auction will take place next week among the approved bidders. Although Refco's futures arm isn't covered in the group's bankruptcy filing, the Court has control over it as an asset which can help to repay the parent group's many creditors.

Speed is of the essence, as clients depart the futures unit at a rapid clip. Says J Gregory Milmoe, lead lawyer for Refco: "If you can sell your fish today, they'll still be fish. Wait three days and you'll have fertilizer."

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