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8/8/2019 Group 3 Refco
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Presentation by
Judy Tuwei, Jackline kultany, Emmanuel Nyakeriga,
Sirengo Maurice
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Introduction
y Refco Incorporation collapsed after a accounting fraud
y Refco was cash rich company
y Refco was declared bankrupt
y Bennet one of CEO/chair was charged for various related
financial scandals.
y Refco was privately acquired.
y Refco expanded fast and acquired several firms-
increased pressure of competition.
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Introduction
y Expanded globally
y Refco was digitized and fully traded online globally
y Refco went public
y Refco was rebranded as well changed of ownership
y Refco diversified from commodity business to brokerage
y Refco was in trouble with regulatory authorities
y Shareholders deserting hence a huge drop in shares
value
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Key Corporate Governance issuesy Ineffective internal controls and accounting practices-
Bennet had been concealing information by
manipulating accounting records he was not giving truepicture of the actual scene
y Practices and systems regarding keeping fraud
preventions were missing.
y Financial reporting was doctored-not accurate.
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Other Key Corporate Governance
issuesy Collusion of stakeholders-Refco auditors, its IPOs underwriters, financial
institutions and law firm colluded in fraud.
y CEO (Bennet) qualification questionable-he was CFO despite majoring inGeography.
y Due diligence lacked in decision-making i.e. extending credit to traderswith poor credit histories.
y Poor relationship with regulatory authorities-fined severally for breakingthe laws.
y Not compliant with legal requirements.
y Asymmetric information-frequently denied claims and released
information that was not giving true picture of the actual scene.y Unusually high interest payment made to Refco by a loan given by entity
owned.
y IPO was initiated before proper financial scrutiny
y Failure of governance and ethics
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Cause and EffectsCauses
y Making public
details of accounting
frauds
Effects
Shareholders deserting
Corporate image
tainted Criminal charges
Shares value dropping
Sale other assets byRefco group
Collapse of Refco-bankruptcy: swiftestcrash of a publiccompany on record
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Models/Principles of Corporate to
be Consideredy Market Model of corporate governance-key principles are;
y Shareholders environment
y in long run there was dispersed ownership, increased sophisticated
institutional investment and
y Independence and performance
y Bennet was CEO and Chair of the board
y Transparency and accountability
y High disclosure not appropriate
y Capital market liquidity
y Active takeover of the market
y Active private equity market including IPO
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The Link of the Problem with
principlesy Shareholder environment
y Vulnerability of investors Principal-Agent conflict
y Independence and performancey Bennet is CEO as well Chair
y Transparency and accountability
y Ineffective internal controls and accounting procedures
y Capital market liquidity
y Regulatory board unable monitor and supervise the
capital market
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Recommendation/Solutiony Corporate communication-Correct anticipation of the
repercussions of making details the accounting fraud.
y In diversified financial services organization trust,reputation and confidence should be maintained.
y Internal control Procedures. Strengthening the internal
controls to prevent concealing huge liabilities.
y Ascertaining due diligence before the IPO.
y Corporate Compliance-Regulations that ensure financial
departments prepare statements that comply with the
federal law.
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y Leadership
y Corporate compliance
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Conclusiony Top management role in ensuring high standards to
corporate governance
yCorporate communication-Smooth communication
y Corporate fraud involves wide network
y Inefficacy of disclosures
yWeak regulation in catching frauds perpetrated by
CEOs
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You wonder why someone so wealthy, in suchpowerfulposition would do something so
immoral!
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Thank you
Question
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