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Troubled commodities broker Refco Inc. has filed for Chapter 11 bankruptcy protection and said it had reached a preliminary deal to sell its core futures brokerage business to a group of private investors for $768 million. The consortium of prospective buyers for Refco LLC is led by private buyout firm J.C. Flowers & Co. LLC, which specializes in taking distressed financial companies and either turning them around or selling the pieces to other companies. The investors are purchasing just the commodities business, which remains solvent, while the rest of Refco filed for bankruptcy late Monday night. “We’re very keenly interested to see if we can resuscitate all of Refco’s businesses,” J.C. Flowers Chairman Christopher Flowers told the CNBC network Tuesday. “We don’t think this is risky. We think this is going to work out fine.” As part of the agreement, Refco said it will have the option to retain up to 20 percent of the equity value of the entities being sold. The New York Stock Exchange announced Refco’s stock will be delisted as a result of the bankruptcy filing. Shares of Refco, which went public in August, tumbled last week before the Big Board suspended trading on Thursday. After the delisting, Refco began trading on the “Pink Sheets,” an electronic trading system, where shares fell 85 percent, or $6.75, to $1.15 per share. Refco shares have lost 96 percent of their value since Oct. 7, the last day of trading before the scandal broke. In its statement late Monday, Refco said Mark Winkelman will serve as chairman of Refco LLC. Winkelman was formerly head of J. Aron & Co. and co-head of Wall Street investment bank Goldman Sachs Group Inc.’s fixed income division. Jacob Goldfield will serve as vice chairman. Winkelman was upfront about the challenges Refco faces in restoring customers’ confidence in the trading firm. “Indeed, some of the customers have decided to withdraw their funds, not unreasonably so,” Winkelman told CNBC, “but the presence of our capital, our management skill … will stem that flow fairly soon, if not immediately.” The Flowers-led consortium includes The Enstar Group, Inc., Silver Point Capital, MatlinPatterson Global Advisers LLC, and Texas Pacific Group. Refco said it expects definitive agreements to be reached soon. Enstar Group Chairman Nimrod Frazer told The Associated Press that Flowers plans to revive the company, rather than sell off the business to someone else. Flowers sits on Enstar’s board, and engineered that company’s turn around as well. “He’s got some substantial management people who know this business with him,” said Frazer, whose company plans to invest $25 million in the potential Refco takeover. “This isn’t some jury-rig deal. I think these people are fortunate to have a man like him to help them.” The bankruptcy and brokerage sale capped a week of stunning disintegration for Refco, which disclosed Oct. 10 that its former CEO, Phillip R. Bennett, concealed a $430 million debt from the company’s books. Bennett was arrested and charged with securities fraud after repaying the company that amount with interest. Authorities said the hidden debt was as high as $545 million at one point. The company last week froze customer accounts in its Refco Capital Markets offshore broker subsidiary until next week, and said Thursday it would liquidate its Refco Securities LLC subsidiary, which trades stocks, bonds and credit products. While the company has refused to comment beyond its press releases, the subsidiary moves speak to an exodus of customers from all parts of Refco, analysts said, leading to a loss of assets and revenue potentially far greater than that caused by Bennett’s alleged misconduct. The bank that loaned Bennett the money to cover the alleged discrepancies said Tuesday it would be prepared to take a loss if needed. Austria’s Bank Fuer Arbeit und Wirschaft AG, or Bawag, said it loaned Bennett 350 million euros ($418.4 million) and another 75 million euros ($89.7 million) directly to Refco to cover unnamed “liabilities.” The loan was secured by Bennett’s 34 percent stake in Refco stock. Bawag said it still considers the collateral valid, but would be prepared to “cover any potential risks.” Nonetheless, Austria’s Vice Chancellor Hubert Gorbach called for an investigation of the loan. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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