Refco's Bennett Falls Hard

Much of the six-page complaint focuses on a $300 million transaction that occurred in February, a few months before Refco filed for its initial offering. In the transaction, Refco loaned a customer $335 million, which was supposed to be repaid on March 8. That customer, allegedly, then turned around and loaned Bennett's Refco Group Holdings $335 million, charging Bennett a higher interest rate than it was paying Refco.

Bennett allegedly then used that $335 million to pay off his existing debt to Refco. Prosecutors say "the result of these transactions was to substitute" one debt for the other.

On Monday, prosecutors say, when Refco ousted Bennett and said he had made the company whole, about 350 million in euros were being wired into an account in the name of Bennett and Refco Group Holdings. The transfer came from an unnamed foreign bank.

When asked if there were going to be more arrests, Michael J. Garcia, the U.S. attorney, had no comment, but he acknowledged that the investigation is ongoing.

Gary Naftalis, Bennett's lawyer, could not be reached for comment. A Refco spokesman says the company is continuing to cooperate with the investigation.

Meanwhile, Liberty Corner Advisors, a New Jersey money-management firm, is emerging as a critical player in the $430 million accounting scandal that devastated Refco and forced Bennett's ouster, a regulatory source said.

Regulators believe the Summit, N.J.-based investment advisory firm, which claims to manage $15 billion in assets, was used by Bennett to conceal his role in assuming eight years of bad debt owed to Refco by customers, a person familiar with the situation said.

Liberty Corner's involvement in the growing financial scandal was first reported by The Wall Street Journal. Refco put Bennett on indefinite leave Monday after the debt transfer was discovered by company accountants.

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