Ex-Refco directors forfeit $39 mln tied to fraud

Fri May 7, 2010 2:01pm EDT

* Money to go to Refco victims

* Settlement resolves civil forfeitures complaint

By Jonathan Stempel

NEW YORK, May 7 (Reuters) - Two former Refco Inc directors have agreed to forfeit $39 million that prosecutors said is traceable to fraud at the now defunct futures and commodities broker.

Edwin Cox, 63, and William Graham, 61, agreed to the forfeiture to resolve a civil forfeiture complaint filed on Thursday, U.S. Attorney Preet Bharara in New York said.

Cox, a resident of Athens, Texas, was a Refco director from Sept. 1998 to June 1999, while Graham, a Dallas resident, was on the board from April to August 1999, prosecutors said.

Prosecutors said the $39 million was awarded to resolve a dispute over how to distribute the proceeds of a 2004 leveraged buyout in which private equity firm Thomas H Lee Partners LP [THL.UL] paid $1.9 billion for a majority stake in Refco.

Steven Kobre, a lawyer representing Cox, declined to comment. Marc Weinstein, who represents Graham, did not immediately return a call seeking comment.

Refco and 23 affiliates filed for Chapter 11 protection from creditors in October 2005.

The filing came two months after the New York-based brokerage raised $583 million in an initial public offering and one week after it revealed that onetime Chief Executive Phillip Bennett hid $430 million of debt.

While Refco's fraud did not surface until that October, prosecutors believe it began as early as the mid-1990s. The bankruptcy remains one of the largest in U.S. history.

Several onetime Refco executives entered guilty pleas or were convicted for their participation in the company's activities.

Bennett pleaded guilty to securities fraud and other charges and is serving a 16-year prison sentence. Former President Tone Grant, the only top Refco executive to stand trial, is serving a 10-year prison term.

Bharara said the proceeds of Cox's and Graham's forfeiture will go to victims of Refco's fraud. Neither Cox nor Graham admitted wrongdoing in agreeing to settle.

The civil forfeiture case is U.S. v. $35,100,000 in United States Currency et al, U.S. District Court, Southern District of New York, No. 10-03743. (Reporting by Jonathan Stempel; editing by Andre Grenon)

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