Regulators Tell Refco to Release Customer Assets

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U.S. regulators told Refco Securities LLC they may take action against the broker-dealer if it does not provide customers immediate access to their accounts and property, its bankrupt parent Refco Inc. (RFXCQ) said in a court filing this week.

In a Monday filing with the U.S. bankruptcy court in New York, the futures and commodities firm said the U.S. Securities and Exchange Commission and the Securities Investor Protection Corporation (SIPC) "expressed serious concern" that the Refco Securities unit had recently stopped closing out customer accounts and returning property and assets.

On December 23, SIPC said it was "considering initiating a proceeding against Refco Securities" that Refco in the court filing said would "provide customers immediate access to their accounts and customer property."

The broker-dealer had suspended the closing of accounts after realizing that some amendments to its bankruptcy filing "prohibited the return of customer property in the ordinary course of business."

Regulators, however, said they were considering actions to supersede the amendment and restart the return of customer assets with a SIPC proceeding similar to a liquidation.

Refco said it wants to continue to return customer accounts, but avoid a SIPC proceeding.

Refco's securities unit -- in a filing that seeks court permission to amend the process for closing accounts -- argued that the costs and expenses of a SIPC proceeding would be damaging and potentially hurt its debtors by eating into the existing net equity value in Refco Securities of more than $50 million.

The SEC and SIPC agreed to wait until at least December 27 before taking any action.

SEC spokesman John Heine declined to comment.

Refco Securities, which did not file for bankruptcy with the rest of the company on October 18, had said on October 14 that it had begun to wind down its business. Approximately 550 customer accounts, with balances of $13.71 million of cash and other property, remain at the firm.

Refco filed for bankruptcy protection days after accusing its former chief executive, since charged with securities fraud, of hiding $430 million of debt.