Austrian Bank Bawag Settles U.S. Fraud Case

Austria’s Bawag bank will pay at least $675 million to avoid prosecution and settle bankruptcy claims after admitting its role in the collapse of commodities brokerage Refco Inc., U.S. authorities announced Monday.

The bank and the Austrian Trade Unions Assn., which owns Bawag, will forfeit $337.5 million to the United States to be distributed to victims of the fraud at Refco, prosecutors and the Securities and Exchange Commission said.

In return, U.S. authorities have agreed not to prosecute Bawag, U.S. Atty. Michael Garcia said.

The government will distribute half of the forfeited funds to the Refco bankruptcy estate and half to other victims of the fraud, he said.

The bank said in a statement that it would initially pay $158 million, with $150 million being divided equally between Refco creditors and the Justice Department and $8 million being paid to a class-action settlement fund.

The bank said the Justice Department would distribute the money it received to the Refco estate and securities claimants, among other parties.

As much as a year later, the bank said, it will pay the rest of the money to be split equally between the Justice Department and Refco creditors.

The non-prosecution deal included a statement from Bawag in which the bank acknowledged that it assisted former Refco Chief Executive Phillip R. Bennett in hiding hundreds of millions of dollars of Refco losses from investors and creditors.

According to the statement, some former senior executives of the bank, including the then-chairman and a member of the managing board who became chairman in 2003, knew that Bennett wanted to manipulate certain inter-company balances.

The statement said the bank made short-term loans of hundreds of millions of dollars to Refco from 2000 to February 2005 so the commodities broker “could manipulate certain inter-company accounts in order deceptively to ‘improve’ Refco’s balance sheet.”

New York-based Refco was one of the world’s largest commodities brokerages, employing 2,400 people in 14 countries. Bawag bought a 10% interest in Refco in 1999.