U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20405 / December 19, 2007
Accounting and Auditing Enforcement Release No. 2758 / December 19, 2007
U.S. Securities and Exchange Commission v. Santo C. Maggio, 07 CV 11388 (S.D.N.Y. filed December 19, 2007)
SEC Files Settled Action Against Former Refco Senior Executive For Role In Company's Disclosure Fraud
The U.S. Securities and Exchange Commission (the Commission) today announced that it filed a settled civil injunctive action in the U.S. District Court for the Southern District of New York against Santo C. Maggio, a former senior executive of Refco Inc. and its corporate predecessor, Refco Group Ltd. (together, Refco). Maggio was an executive vice president at Refco and headed Refco's registered broker-dealer subsidiary. The Commission's complaint alleges that Maggio played a significant role in concealing hundreds of millions of dollars of related party receivables. The complaint also alleges that Maggio participated in certain practices that inflated Refco's financial results. As a result, the complaint alleges, Maggio violated Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2 2(a), and aided and abetted violations of Sections 13(b)(2)(A) and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13. Maggio has consented to the entry of a proposed final judgment that would settle the injunctive action against him.
The Commission's complaint alleges that, from at least 1998 to October 2005, Phillip R. Bennett, Refco's chairman and chief executive officer, implemented a fraudulent scheme that periodically concealed receivables owed to Refco by Refco Group Holdings, Inc. (RGHI), a non-Refco entity that Bennett controlled. These related party receivables were primarily the result of trading losses and operating expenses that Refco transferred over time to RGHI. Refco utilized a series of short-term loans that temporarily transferred the receivables to third parties immediately prior to the ends of Refco fiscal periods. A few days after the fiscal periods ended, the transactions were reversed, and the receivables were transferred back to RGHI. The Commission's complaint alleges that Maggio oversaw these fiscal period-end transactions. Maggio discussed the transactions with Bennett, made arrangements with many of the third parties that temporarily assumed the receivables, executed some of the documents involved in the transactions, and provided false and misleading information about the receivables to Refco's public accountant.
The Commission's complaint also alleges that Bennett instituted practices that inflated Refco's reported financial results in 2005. Maggio helped Bennett carry out those practices. They involved Refco recording fictitious interest income purportedly earned on the RGHI receivables and income from sham foreign exchange transactions. The inflation of financial results was undertaken to make Refco more attractive to potential investors.
The Commission's complaint further alleges that, in 2005, Refco filed with the Commission and provided to investors registration statements and periodic reports that provided false and misleading information about the receivables and Refco's revenue and income. The filings failed to disclose the receivables and the period end transactions, and some of the filings reported income that had been fraudulently inflated.
Without admitting or denying the allegations in the Commission's complaint, Maggio has consented to the entry of a proposed final judgment that would enjoin him from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 13b2-1, and 13b2 2(a), and from aiding and abetting violations of Sections 13(b)(2)(A) and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13. The proposed final judgment also would prohibit him from serving as an officer or director of a public company.
Maggio also agreed to settle proposed administrative proceedings against him pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940, to be based on the entry of the proposed injunction. Pursuant to his offer of settlement, Maggio would consent to the issuance of a Commission order barring him from association with any broker, dealer, or investment adviser.
In a related action, the U.S. Attorney's Office for the Southern District of New York announced today that Maggio has pleaded guilty to felony charges arising from his role in the Refco fraud.
The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, the United States Postal Inspection Service, and the Commodity Futures Trading Commission.
The Commission's investigation is continuing.
See also Litigation Release No. 19716 (June 5, 2006); Litigation Release No. 20402 (December 18, 2007).
