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Refco Continues to Amaze; A TheStreet.com Story not to miss

Location: BlogsDave Patch's Blog
Posted by: dpatch 1/24/2006 3:38 PM


Who better to break a tremendous story than TheStreet.com; home of infamous Jim Cramer?

While Jimmy denies Naked Shorting exists, is abusive, or that networks are out there to destroy small business enterprises, TheStreet.com columnists Matt Goldstein is out pounding the pavement digging up reality. Matt apparently found what his founder could not.

In an article published today by Mr. Goldstein; Bawag: Austria's Master Plumber Goldstein laid out the cast of characters involved in abusing our markets.

In a shadowy corner of Wall Street where cash-strapped companies go begging for their lives, one foreign bank stands out, both for the scope of its involvement and the measures it has taken to conceal it.

Over the last nine years, Bank fur Arbeit und Wirtschaft, or Bawag, the Austrian financial group best known for its ties to Refco, has quietly become a key player in an obscure but booming market where public companies seek last-ditch financing via private placements of new stock. Known as public investment in private equity, PIPE offerings have grown from a backwater into an $18 billion-a-year financial frontier dominated by hedge funds and other sophisticated players.

Even by the murky standards of the PIPEs market, Bawag's role is hard to pin down -- and that appears to be by design. Austria's fourth-largest bank uses a network of foreign hedge funds and a small New York investment firm to do its bidding in PIPEs, rarely linking its name to any transaction even though its fingerprints are stamped on scores of them.

TheStreet.com has found that Bawag is either a significant investor or controlling shareholder in at least four foreign hedge funds that are active players in the PIPEs market: Alpha Capital, Austinvest Anstalt Balzers, Austost Anstalt Schaan and Celeste Trust, all of which are based in the tiny European country of Lichtenstein. Bawag also has a financial interest in LH Financial Services Corp., an obscure New York investment firm that has sunk more than $70 million over the past two years into about 150 different PIPEs deals, almost all of them penny-stock companies.

In 2004, LH Financial was the second most prolific PIPEs investor in the country by transactions, placing money in 102 different deals, according to PlacementTracker, a research firm. The pace slowed in 2005, when LF invested in about 45 deals -- still good enough to rank in the U.S. top 10.

Now let’s see, BAWAG was most recently exposed for providing Phillip Bennett of Refco the $430 Million Loan to cover up the Refco “Bad Debt” problem, a “Bad Debt” issue that resulted in a Refco Bankruptcy costing investors billions. Gee, you think the SEC was taking notes?

According to Goldstein:

The hedge funds -- Alpha Capital, Austinvest Anstalt Balzers, Austost Anstalt Schaan and Celeste Trust -- were once customers of two former Refco brokers, Matthew Drillman and Jacob Spinner, who were implicated in one of the first manipulative PIPEs trading cases ever brought by securities regulators.

The Securities and Exchange Commission has never publicly identified the brokers, nor charged them with any wrongdoing. But people familiar with the inquiry confirmed their identities. The SEC, sources say, is continuing to investigate allegations that the brokers, working at the behest of an investment firm called Rhino Advisors, engaged in manipulative trading on behalf of Amro International, a Swiss hedge fund.

There's nothing to indicate that Drillman and Spinner ever engaged in any improper trading with regard to the Bawag-related hedge funds. Still, there is ample evidence the brokers were willing to go to great lengths to please their customers.

So of course the SEC is taking notes. Notes from the Hedge Funds to cover this up. And surprise of all surprises, Brokers willing to go to great lengths to please wealthy clients.

Goldstein even goes on to say that the two brokers involved in the illegal shorting of Sedona Corportaion actually still work in the industry. That’s right, some 3 years after Rhino was fined, the Brokers involved in the abuse; Refco Brokers, are still working our markets. I hear that with a 5-year statue of limitations, the SEC may be delaying long enough to let the enforcement slip…

I asked the SEC to comment on this and that whiz kid (actually old man) John Heine could only say “No Comment” like it was some National Security secret. Heine actually wanted to debate whether or not the SEC was the ones who provided the audio tapes used in the arrest warrants of Andreas and Thomas Badian. The audio tapes containing those compelling words “sell with unbridled levels of aggression”.

It is clear the SEC will be doing nothing to support this cause. They let Refco go public as background such as this is being uncovered by experienced columnists – out of TheStreet.com no less.

Matt Goldstein did us a service today that should not go un-noticed. Matt actually e-mailed me earlier this morning and offered up these articles in case I missed them. His efforts demonstrate that not all members of the press are conflicted as this columnist works for a company whose founder is 100% opposed to any public expression that naked shorting is real.

I suggest you read the article and read it closely. There is a tremendous amount of information contained in the article and information that should be presented to your Congressman.

1.) What is the survival rate of the PIPE’s these guys were associated with?
2.) Where is Investor Protection when the SEC is allowing Refco Brokers to continue working our markets after being exposed in their aiding fraud some 3-5 years previously?
3.) How could the SEC overlook such compelling connections, connections they must have been aware of, and allow Refco to go public? Now a multi billion bankruptcy.
4.) If the SEC is willing to overlook this egregious abuse, what else are they willing to overlook?

Read the article and drop Matt a thank-you note.

www.thestreet.com/pf/stocks/brokerages/10263382.html


(Link: http://www.thesanitycheck.com/Blogs/DavePatchsBlog/tabid/66/EntryID/41/Default.aspx )