New Focus in Refco Inquiry

The debt-hiding scheme allegedly made Refco appear financially healthier to both regulators and potential suitors, including Thomas H. Lee Partners, which engineered the $1.4 billion buyout of Refco in July 2004.

Prosecutors allege the scheme orchestrated by Bennett involved a series of circular loans between a company he owned and controlled -- Refco Group Holdings Inc. -- and another hedge fund, since identified as Liberty Corner Capital Strategies, which is also based in Summit.

In the early days of the scandal, investigators suspected that other hedge funds may have been employed in the debt-hiding scheme besides Liberty Corner. Sources say investigators began zeroing in on Delta Flyer within days of Refco's collapse.

Indeed, a recent fee application submitted by a forensic accounting firm in the Refco bankruptcy refers to "loan documents referencing 'Liberty Corner' and 'Delta Flyer.'" The fee application submitted by Milbank Tweed Hadley & McCoy, which represents Refco's many creditors in the bankruptcy proceeding, says lawyers at the firm spent time searching for "owners of companies at 47 Maple Street and 30 Maple Street in Summit, N.J."

Liberty Corner, which is in the process of winding down its operations, was located on a first-floor office at 47 Maple St. in Summit. EMF Financial and Delta Flyer had shared a second floor office at 30 Maple St. In June of 2003 Flanagan moved EMF's operations to New York City.

For the moment, little is known about the loans involving Delta Flyer. As for Liberty Corner, prosecutors have depicted the fund as a repository used by Bennett to hide hundreds of millions of dollars in problem debt.

In the November indictment against Bennett, prosecutors allege a web of crisscrossing loans were used to make it appear that Liberty Corner owed hundreds of millions to Refco, when in fact it was Bennett's Refco Group Holdings Inc. that owed the money.