Bawag: Austria's Master Plumber

The SEC's investigation into improper trading by Amro has been going on for more than four years and is the spark that ignited the broader regulatory inquiry into manipulative trading in the PIPEs market.

The first big development in that investigation came in 2003, when the SEC reached a $1 million settlement with Rhino and its president, Thomas Badian, charging them with "directing a series of manipulative short sales."

Regulators say the shorting was illegal because Amro had signed an agreement not to short shares of Sedona as part of the PIPE transaction, even though the price of the company's stock was expected to decline after the deal's announcement. The deal was structured so Amro would get more shares from Sedona as the price of the stock dropped. Amro, which has never been charged by the SEC, benefited from the brokers' actions because it got a ready supply of stock from the deal to cover the illegal short bets.

But the Rhino settlement didn't end the SEC's investigation. Just as Refco was set to go public in a big $583 million IPO last August, regulators notified the brokerage that it was planning to sanction Santo Maggio, the firm's former president, for failing to properly supervise two "former brokers who handled the account of Amro International.''

Maggio reached a tentative settlement with the SEC to serve a one-year suspension from some of his duties at Refco, but then the accounting scandal at Refco broke wide open in early October. Within days of the revelation, Maggio was gone.

People familiar with the Amro matter say Maggio was aware that Refco brokers were doing trades for the Bawag affiliates. On at least one occasion, these people say, he discussed the trading and payment of commissions with a top Bawag executive. Scott Hershman, one of Maggio's attorneys, declined to comment.

To be fair, Maggio wasn't the only executive at Refco pushing the broker to work with the Bawag-related hedge funds. Another was Thomas Hackl, a former Refco vice president, who joined the brokerage in 2002 after 11 years as head of investment banking at Bawag.

During his tenure at Bawag, Hackl came to know the hedge funds well. His name often appeared in early regulatory filings as the contact person for Austinvest, Austost and Celeste.

None of those filings, however, ever linked Hackl to Bawag.