One of the hardest questions to answer in the Refco ( RFX) scandal is why Phillip R. Bennett, a Cambridge-educated master trader seemingly assured of a lucrative Wall Street career, would want to cook the books at a company he helped build.

Federal prosecutors, in charging the former Refco CEO with securities fraud, suggest Bennett's main motive in hiding some $430 million in uncollectible debts was the brokerage's initial public offering in August.

But Bennett's alleged deception goes back as far as 1998, years before Thomas H. Lee Partners sank $507 million into Refco and set the stage for its $583 million IPO.

Unless Bennett is a soothsayer, it's hard to imagine he could have known the Boston-based buyout firm would knock on his door in 2004. But an examination of the record suggests that some type of public sale of Refco stock was on Bennett's mind when his plot allegedly began to form.

Indeed, as early as 1999, a year after Bennett allegedly began the scheme to burnish Refco's balance sheet, there was a talk on Wall Street about a Refco IPO. The speculation was spurred, in part, by the decision of Austria's Bank Fur Abeit und Wirtchaft, or Bawag, to take a 10% equity stake in the New York brokerage that year.

Bawag sold its interest when Thomas H. Lee Partners entered the picture in 2004. The bank surfaced again this week when it acknowledged it lent Bennett the money to pay off his $430 million debt to Refco. Bawag's involvement in the Refco mess has led to calls for an investigation from some Austrian politicians.

The possibility of an IPO got more momentum when Thomas Dittmer, Refco's longtime chairman, stepped down in December 1999 and turned over the reins to Bennett. Until then, Dittmer, having invested about $100 million, had a 51% equity stake in Refco, a firm he had led for 20 years. The other equity owners were Bennett, former Refco president Tone Grant, and Bawag.

Under Dittmer's stewardship, Refco grew from a small commodities brokerage into an international powerhouse. Shelly Jacobs, a former Refco broker, says Dittmer was the "glue that held the whole place together.''

But Dittmer, who took over Refco from his stepfather, Ray E. Friedman, was also a controversial figure. It was during Dittmer's tenure that the brokerage paid an $8 million fine to settle charges that it had helped manipulate customer accounts. The fine assessed by the Commodity Futures Trading Commission in May 1999 was hefty at the time.

Dittmer's departure was seen by many on Wall Street as part of an effort by Refco to clean up a renegade image. A number of other management changes were effected around this time. In setting with the CFTC, Joseph Murphy, who had just joined Refco as its new president, said, "Refco has begun the process of putting any issues with federal regulators or futures exchanges behind us.''

Refco executives were less vocal about the terms under which Dittmer left the company. A trade publication, Securities Week, reported in December 1999 that Dittmer's separation agreement included a provision that afforded him a lucrative post-departure payout in the event Refco ever went public or was bought.

In its IPO registration statement, Refco reported that within the past year it made an $861.7 million payment to a "former shareholder'' for sale of an interest in the predecessor company. Refco has not identified the shareholder. The payout was reported Friday by the New York Post, though the newspaper said the recipient remains a mystery.

If Dittmer received the money, the payout would cast an interesting new light on Bennett's possible motivation for allegedly concealing the bad debts on Refco's books. At the very least it would help explain why Bennett was worried about the appearance of Refco's books at a time when the company was still seven years away from an IPO.

"There is no question if these were credit loses that would have definitely reduced the performance of the firm,'' says Peter Nerby, a senior credit officer with Moody's Investors Service. "That would have affected how we would have viewed the creditworthiness of the company.''

A Refco spokesman declined to comment on the hefty payout. Dittmer could not be reached for comment. Bennett's lawyer, Gary Naftalis, could not be reached for comment.

Nerby says that acknowledging the losses up front, instead of concealing them, would have reduced earnings at Refco and possibly reduced its capital. And Refco was "a thinly capitalized firm to begin with,'' he says

A reduction in working capital would have been particularly troublesome for Refco in the late 1990s, when it first considered the idea of an IPO. It would have jeopardized the firm's then-AA credit rating and made it far more costly to borrow money.

If Refco had revealed the true state of its finances, Bennett might have had a hard time convincing Bawag to invest in the brokerage. It certainly would have caused Thomas H. Lee Partners to walk away in 2004.

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