While fellow customers of RefcoFX.com will not enjoy a similar payout, Saeed Alqahtani received $2.3 million from Refco, the defunct futures brokerage and parent company of RefcoFX.com.
The payout was the result of a $5.85-million claim Alqahtani made against Refco. Alqahtani received part of his claim after U.S. Bankruptcy Judge Robert Drain ruled Alqahtani’s wire transfer raised “interesting issues” that have very little case law to support them.
According to documents filed with the court, on Oct. 16, 2005, Alqahtani wired just more than 11 million Saudi riyals — about $3 million at the time — from his bank in Saudi Arabia to his RefcoFX account in the U.S.
However, the money was not credited into Alqahtani’s account until the morning of Oct. 18 — one day after Refco filed for bankruptcy.
Lawyers for Alqahtani contended the money was an “administrative expense” because it occurred after the bankruptcy filing. Also, Alqahtani traded from the account even after the bankruptcy and made $2.85 million, which he sought in the lawsuit.
Refco countered by saying the transfer became official when Bank of America, the intermediary in the transaction, received the money, which occurred before the bankruptcy filing.
If that were the case, Alqahtani would not be able to claim an administrative expense under bankruptcy law and would have to make a general unsecured claim on the money in the same manner all other RefcoFX customers were forced to do.
Drain ruled in Alqahtani’s favor for the initial deposit, but not for the trading gains.
Meanwhile, Drain also finalized Refco’s Chapter 11 plan, giving RefcoFX.com about 37 cents for every dollar they had in deposit. Customers of Refco Capital Markets, which include many currency hedge funds, will receive about 70 cents on the dollar.
However, RefcoFX customers are not going down without a fight. In an effort to get back every dollar they deposited, a group of RefcoFX clients are pursuing a civil suit against Refco.
A Memorandum of Law (MOL) has been drafted in preparation for the civil suit, and the RefcoFX customers have presented the MOL to the Commodity Futures Trading Commission in an effort to gain the CFTC’s backing in the suit.
The RefcoFX clients (many of whom post on the www.refcofxaccountholders.com Web site) have threatened a stampede of e-mails and phone calls to the CFTC if the Commission does not back them.
However, according to Chicago-based securities lawyer Steve Engelbaum, the Refco clients are probably barking up the wrong tree.
“First of all, while the CFTC is interested in getting money back for clients who have been the victims of fraud, they are not allowed to join in a lawsuit,” Engelbaum says. “And most important, RefcoFX.com was not registered with the CFTC, so it’s outside of their jurisdiction, anyway.”
A spokesperson at the CFTC said all complaints are recorded and considered, although she was not aware of an abnormal number of complaints from RefcoFX.com clients. She also reiterated what Engelbaum said about RefcoFX.com being an unlicensed entity and therefore not under the auspices of the CFTC.
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