Updated from 2:35 p.m. EDT

Federal authorities are looking into the possibility that a second hedge fund was used by former Refco ( RFX) CEO Phillip Bennett to mask his connection to hundreds of millions of dollars of debt at the scandal-plagued brokerage, TheStreet.com has learned.

People familiar with the investigation say there are indications that Summit, N.J.-based Liberty Corner Capital wasn't the only hedge fund Bennett deployed in his plot, which resulted in a Chapter 11 filing for Refco Inc. last week.

The identity of the second hedge fund wasn't known.

The new revelation suggests the already convoluted scheme is even wider in scope than previously believed. Bennett is currently free on a $50 million bond. He was charged with securities fraud a week ago for allegedly hiding from Refco's accountants his connection to $430 million in debt at the New York-based derivatives shop.

On Thursday, Kevin Marino, an attorney for Liberty Corner Capital, said that neither Liberty Corner nor its founder, William Terrance Pigott, are targets of the federal criminal investigation into Refco.

Nevertheless, for the past week, Liberty Corner Capital has existed under a cloud of suspicion. While federal prosecutors never publicly named it in the scandal, sources have described it as a kind of bank account exploited by Bennett when Refco's accountants tried to get a fix on the balance-sheet receivable at the heart of the subterfuge.

Refco has since identified the receivable as uncollectible debt that was run up at the company by unnamed customers over a seven-year period. According to the complaint, a private company controlled by Bennett took over the debt in an apparent effort to burnish Refco's balance sheet. "He transferred the money to Liberty Corner prior to accounting audits, prosecutors say.

In the criminal complaint, federal prosecutors focused on several transactions that took place since 2004, in the months leading up to Refco's $583 million IPO this August. But Refco itself has said the alleged fraud began sometime in 1998.

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