Group 3 Refco

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

Documents

Group 3 Refco