J.C. Flowers, the hedge fund that planned to buy the futures division of bankrupt New York brokerage Refco ( RFXCQ), is backing away from the transaction.

In a statement, Flowers said it is "not prepared to commit at this time" to purchase the operation, Refco LLC, after the bankruptcy court overseeing the sale failed to grant a procedural motion. "We have not made a decision on whether we will participate in the bankruptcy auction," Flowers said.

The withdrawal leaves the door open now for other suitors. The futures operation went on the block last week after Refco Inc. was forced into Chapter 11 protection by a scandal involving its ousted former CEO, Phillip Bennett.

Several other firms have emerged as potential suitors, reportedly including British hedge funds Man Group ( MNGPF) and Marathon Asset Management; Leon Black's Apollo Management; Interactive Brokers Group; some Dubai-based investors; and a team including Merrill Lynch ( MER) and Warburg Pincus.

According to The Wall Street Journal, J.C. Flowers walked away from its bid after the bankruptcy judge lowered a breakup fee and barred an option that would have let the fund bid on other aspects of Refco's business.

Refco, which came public in a $583 million IPO on Aug. 8, filed for Chapter 11 protection a week ago after Phillip Bennett was arrested and charged with securities fraud. Prosecutors accused Bennett of orchestrating a complex scheme to hide hard-to-collect debts from the company's underwriters and investors.

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