Last month, Refco, the largest futures and commodities broker, joined the ranks of some of the largest U.S. companies, such as Enron and WorldCom, whose fortunes - quite contrary to their financial statement presentation - reversed in bankruptcy overnight, wiping away billions of dollars in stock valuations from investor portfolios.Projecting a fictitious financial strength, Refco's financial statements, audited by Grant Thornton, hid as much as $430 million of massive debt due from its chief executive, Philip Bennett, to lure investors into purchasing Refco's stock at $22 a share during its initial public offering. Its IPO was underwritten by Bank of America, Goldman Sachs and Credit Suisse First Boston, and raised $583 million last August.

The related-party debt that was absent from Refco's IPO registration statement is said to stem from trading losses dating back to the 1997 Asian crisis. These losses were kept off Refco's financial statements in a series of short-term circular loan transactions entered into every quarter between Refco's Bermuda subsidiary, Refco Capital Markets Ltd., various lightly capitalized hedge funds, and Bennett's privately held Refco Group Holdings Inc., a Delaware corporation, dating back as far as 1999.

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