Retail customers of Refco’s unregulated foreign exchange brokerage who had their accounts frozen in the aftermath of Refco’s collapse could be in for good news.
Forex Capital Markets (FXCM), a New Yorkbased brokerage, has signed a Memorandum of Understanding with Refco agreeing to purchase Refco FX.com, the bankrupt brokerage’s retail foreign exchange arm, for $110 million.
The deal still must be approved in bankruptcy court, which could happen at any time, according to FXCM CEO Drew Niv.
“The (bankruptcy) judge has pushed the hearing back, but it could be as soon as the end of November,” Niv says.
At the hearing, the judge will set the parameters for an auction, which will last 20 days. At the end of the auction, the winning bidder gains control of the accounts.
Niv says he has heard that a few other firms besides FXCM are interested in Refco’s forex accounts, but nobody needs to make an official bid until right before the auction. Once the deal closes, Refco’s forex customers will have access to their funds.
“All retail foreign exchange customers that went through Refco FX.com will be made whole, and FXCM is buying back the 35 percent share that Refco owns of FXCM,” Niv says. “(Refco is) using the proceeds of that to give customers their money.”
Niv says the deal is important for the foreign exchange industry, as the Refco debacle has left many traders leery of placing money in a forex account for fear of losing their funds.
“FXCM is protecting the reputation of the online foreign exchange industry by demonstrating that there are strong, responsible forex firms able to stabilize the industry in difficult times,” Niv says.
“We believe that our efforts to make these customers whole underlines that commitment.”
Refco’s Capital Market division primarily consists of hedge-fund customers, and Niv has no intentions of taking over those accounts.
Refco Capital Markets has been in the news lately as hedge-fund legend Jim Rogers is claiming Refco moved $362 million in assets to the Capital Markets arm, where it is currently frozen.
“The problem with Refco Capital Markets was that this was the entity Refco used as a bank for all other entities,” Niv says. “It was the one that had the bank credit line, so all the trading used Refco Capital Markets as a clearing firm. Because of that, some money from every entity was at Refco Capital Markets.
“Refco is claiming all (Rogers’) money was in Capital Markets, and since that money was frozen, his money was frozen. This deal will free up all the retail customers, but (Rogers) will have to win a lawsuit. I’m freeing the (retail) customers now to avoid that.”
A representative for Rogers declined comment.
“There is a gray area in the law,” Niv says. “Because there is no specific exemption, the lawyers for Refco interpreted [the law] as a blanket license to seize those assets. Jim Rogers is making the argument that these are funds that were held in trust and are not assets of Refco.
“Personally, I agree with Jim Rogers, but a court will decide it. This shows customers how important it is for their funds to be in a regulated entity.”
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