Austrian bank Bawag P.S.K. Group has agreed to pay $675 million to resolve a federal investigation of the bank for its part in the Refco Inc. scandal, the Securities and Exchange Commission announced.
The SEC announced that it had sued the bank for helping future broker Refco hide losses of more than $1 billion. In the same statement, it announced a settlement by the U.S. Attorney for the Southern District of New York. As part of the settlement, Bawag neither admitted nor denied wrongdoing. The agreement will pave the way for the Austria Trade Union Federation to sell Bawag, the country's fourth-largest bank.
On the heels of the SEC's deal, law firms Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann announced that they had reached a $108 million settlement with Bawag for Refco stock and bond buyers who had sued the bank. The settlement is subject to approval by the federal New York judge who is overseeing the Refco securities litigation, and most of the funds could come out of the government's settlement.
Refco went public in the summer of 2005, raising $583 million in its initial public offering. The company saw its stock price surge through the following weeks, until the company disclosed in October that its chairman and chief executive, Phillip R. Bennett, was being forced out amidst allegations that he had saddled a sister company with more than $430 million of old Refco debt. The stock price went into freefall, erasing about $2 billion in market capitalization, and the firm entered into one of the largest Chapter 11 bankruptcies in history that same month.
In addition to Bennett and Refco's former board of directors, the remaining defendants in the securities class-action suit include the company's former auditor, Grant Thornton LLP; majority owner Thomas H. Lee Partners LP, a private equity firm; and several investment banks that sold Refco securities to public investors, including Goldman Sachs, Credit Suisse and Bank of America.
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