Refco to Pay $8 Million to Settle Charges
Refco Inc., a global futures brokerage, will pay $8 million to settle allegations its lax procedures let Beverly Hills money manager S. Jay Goldinger juggle customers’ profits and losses.
Refco, without admitting wrongdoing, agreed to pay $6 million to the Commodity Futures Trading Commission, one of the largest penalties ever assessed by the agency, and $1 million to fund an industry study of how brokers receive and record customer orders.
In a related settlement, Refco will pay $1 million to the Chicago Board of Trade.
Refco took Treasury futures orders from Goldinger without account numbers, enabling him to decide who made and lost money, the commission said.
His investment consulting firm, Capital Insight Brokerage, collapsed after losing about $100 million of client funds in 1995 from making wrong-way bets on interest rates.
Chicago-based Refco was cited for its “serious record-keeping and supervision failures,” Geoffrey Aronow, the commission’s enforcement director, said.
Refco cleared Capital Insight’s trades and also provided statements to its customers, including Tustin-based PairGain Technologies and Pier 1 Imports Inc. PairGain, a Tustin-based maker of high-speed communications systems, lost almost $15.8 million in an account handled by Goldinger. Pier 1, a Fort Worth-based home furnishings company, reported $19.3 million in trading losses.
The study, to be conducted by the industry’s research and education group, is the first required by the commission as part of a settlement.
Refco has already paid the commission $2.8 million since 1990 to settle unrelated cases alleging failure to supervise employees, keep records and segregate accounts. The company has changed its management since July and removed or reassigned many employees.
Goldinger and Capital Insight were not identified by name in the settlement. But lawyers familiar with the matter said Goldinger was the broker whose actions are described. Goldinger’s attorneys did not return calls seeking comment. The commission has not charged Goldinger with any wrongdoing.
The case has extended beyond the futures industry.
Last week, PairGain disclosed in a regulatory filing that the company and “past and present officers and employees” are being investigated. PairGain said the company has done nothing wrong.
Pier 1 could face Securities and Exchange Commission penalties over reporting details of its investments, the Wall Street Journal reported Monday, citing unnamed sources. The company had no comment.
