Bank fur Arbeit und Wirtschaft
will pay at least $675 million as part of deal with U.S. authorities to avoid prosecution for its role in the collapse of
The deal with Bawag has been in the works for the past month, ever since Refco's creditors charged Austria's fourth-largest lender with aiding and abetting the accounting fraud that led to Refco's bankruptcy filing last October.
Securities and Exchange Commission
announced the deal with Bawag on Monday morning. As part of the settlement, the SEC said it plans filing a civil injunction against Bawag in New York federal court.
Federal prosecutors in New York also are expected to file their own settlement with Bawag sometime Monday morning.
In the deal, Refco's creditors are expected to get at least $337 million of the settlement proceeds. Refco's shareholders are expected to walk away with $108 million. Meanwhile, Thomas H. Lee Partners, the Boston-based private equity firm that engineered the $1.9 billion leveraged buyout of Refco in 2004, is expected to collect at least $50 million from the settlement.
Sources say some of the settlement money will be classified as a fine.
The SEC, in its complaint, alleged that Bawag helped Phillip Bennett, Refco's former CEO, hide hundreds of millions in bad debts from February 2000 through the first few months of 2005. The SEC claims Bawag had a vested interest in aiding and abetting the fraud because it "intended to cash out'' its equity interest in Refco in the commodity brokerage's $585 million IPO last August.
Refco creditors and shareholders allege that Bawag had a secret deal with Refco that effectively gave the bank a 37% equity stake in the brokerage, a much larger ownership position than it publicly acknowledged.