Refco Creditors Cry Foul

Another group is crying foul over missing assets in the Refco(RFXCQ) collapse.

There's a twist in the latest case. The aggrieved party isn't some hedge fund that saw its money locked up when the scandal-tarred commodities brokerage blew up in October. It's Refco creditors, who want to know why a fund managed and marketed by the brokerage was able to move its money to safety just as the scandal was erupting.

Lawyers representing Refco's creditors charge that about $312 million in an index fund formerly managed and marketed by Refco was improperly moved from the brokerage to a new account now with Lehman Brothers(LEH), according to regulatory filings and people familiar with the situation.

The bankruptcy judge overseeing the Refco matter has frozen the transferred assets, effectively prohibiting investors from redeeming any of their money in the S&P Managed Futures Index Fund until the dispute is sorted out.

The S&P Managed Futures Index Fund, sold to investors under the brand name Sphinx Managed Futures Fund, is designed to track the performance of the S&P Managed Futures Index, which was set up to mirror the performance of commodity-focused hedge funds. The nearly three-year-old fund is managed by an affiliated entity of what used to be Refco.

Judge Robert Drain issued the freeze order on Dec. 15 in a closed-door proceeding with lawyers from Milbank Tweed Hadley & McCloy, the big New York law firm that's representing Refco's many creditors. In a rare move, all the court filings in the action have been sealed by the court and are not available to the public. The judge also has agreed to hold all future hearings in the case out of the public eye.

The secrecy surrounding the action is unusual for a civil proceeding. In court papers, lawyers from Milbank Tweed contend the secrecy is needed to prevent "irreparable harm'' to the creditors and third parties.