Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence


Details on Mr. Flottl, Bawag and Refco Losses in WSJ

The January 24th edition of The Wall Street Journal contains an informative Page One story on Wolfgang Flottl (sometimes spelled "Floettl") and his involvement in the scandals at Bawag Bank in Austria and the collapse of commodities broker Refco in October 2005. (TCM has previously commented on Mr. Floetll here, here and here.) In this WSJ article Bad Bet written by David Crawford and Carrick Mollenkamp, "Austrian prosecutors say they discovered that Mr. Flöttl's hedge-fund investments soured eight years ago, causing Bawag to lose more than $1 billion. But the bank hid those losses from auditors for seven years through a complex series of transactions involving Refco." The article continues:

Something Brewing in Refco, Bawag Bank and Wolfgang Floettl Scandal??

[Update 1-25-2007: More current information on the TCM website for this topic can be found here.]

Connections: Refco, Bawag, Ross Capital Markets and Liberty Corner???

This morning while investigating further information on the failed hedge fund Ross Capital Markets, TCM came across the resume of one Stuart Reed, who spent time at Enron after leaving a certain Liberty Capital Ltd. in London, U.K. from 1994 to 1996. In that resume document, Stuart Reed indicates that Liberty Capital was the middle and back-office are of Ross Capital Markets By happenchance, did the firm Liberty Capital somehow morph to Liberty Corner that has been tied to the parking of loans that former Refco CEO Phillip Bennett performed at each quarter-end?

Small World: Liquid Opportunities Plus Fund Linked to Bawag Bank

This International Herald Tribune article suggests that Refco Capital Markets Ltd in Bermuda held approximately $525 million in non-existent bonds at time of bankruptcy that were issued from six Anguilla companies, which in turn were owned by Bawag bank and Liquid Opportunities Fund in some undisclosed fashion. According to this press release from Jonathan P. Knight of Liquid Opportunities,

I was involved in the management of Liquid Opportunities until November 2004. Liquid Opportunities was an offshore investment fund with non-U.S. investors that primarily owned non-U.S. securities. Thus, Liquid Opportunities was not registered with the SEC or any other U.S. Agency.

Austria Issues Arrest Warrants for Wolfgang Floettl and Phillip Bennett

After Bawag bank admitted late last week to concealing close to a billion dollars in trading losses, Austrian officials have issued arrest warrants on March 28, 2006 for Wolfgang Floettl (sometimes spelled as Wolfgang Flottl), the son of the former head of Bawag bank, and Phillip Bennett, the former CEO of U.S. futures dealer Refco. This BBC story has more details.

Toomre Capital Markets LLC has previously posted here that Mr. Floettl and his firm Ross Capital were rumored to be one of the 10 or so customers whose losses during the 1997 Asian financial crisis led to the bad debts that were concealed by Refco’s former chairman Phillip Bennett. With recent news that Wolfgang Floettl also incurred unreported losses at Bawag during the period of 1996-2000, one has to seriously question just how “arm’s length” all transactions between Refco and Bawag ever were subsequent to mid-year 1997. For instance, since Wolfgang Floettl was the son of the head of Bawag bank (widely known as “Mr. Bawag”) and he is rumored to have incurred serious losses that were concealed by both institutions, one might reasonably question why and at what price Bawag agreed to purchase 10% of Refco in 1999.

Was there some quid pro quo between Bawag and Refco that never was disclosed to third parties? A reasonable person might suspect that the answer to this question is a resounding yes. If so, then a social network analysis (“SNA”) might be particularly helpful to better understand the relationships between Refco, Bawag, Ross Capital, PlusFunds, Liberty Capital and other organizations tied to the Refco scandal. Perhaps given time constraints, TCM might be able to pull together the names of key individuals who could be included in such a SNA mapping exercise. If one is interested in the initial data for such a SNA mapping, please contact Toomre Capital Markets directly.

PlusFunds tied to Refco and Bawag??

Greg Newton on his blog NakedShorts has been following the on-going developments with a money manger called PlusFunds that had a significant portion of its assets held by Refco Capital Markets, the unregulated Refco subsidiary based in Bermuda, until just before Refco’s bankruptcy filing. Apparently, the then CEO of PlusFunds, one Christopher Sugrue, a New York money manager and past employee of Refco, showed up at Refco’s offices just after the loan to Refco’s then CEO Phillip Bennett was announced and demanded that his company’s assets be transferred immediately to on-shore segregated accounts. The creditor committee of Refco subsequently got these funds to be frozen which in turn led to significant redemptions from PlusFunds’ investors and the filing for bankruptcy protection by PlusFunds earlier this month.

The Wall Street Journal has more information on a SEC investigation of PlusFunds’ dealings with Refco here. The article notes that Mr. Sugrue “was a senior executive at Refco for more than five years, according to a biography in court papers. In addition to working with hedge funds on the firm's behalf, Mr. Sugrue helped negotiate the sale of 10% in Refco to Austrian bank Bawag P.S.K. in 1999.”

Toomre Capital Markets LLC is curious about with whom at Bawag Mr. Sugure was negotiating. As noted in an earlier post here, news has recently emerged of hidden losses at Bawag incurred during the late 1990’s period and that executives up to and including the chairman were involved in the concealment. Was Mr. Sugure’s negotiating partner perhaps a certain Thomas Hackl, who at the time apparently was the head of Bawag’s Treasury department? Greg Newton mentions Mr. Hackl at the end of his PlusFunds post and this rumor mill page has other unsubstantiated information on Mr. Hackl.

All of this is very curious. The PlusFunds, Refco and Bawag seem to be much more intertwined than first appearances. It appears likely that the public will be learning more about the interrelationships between these three organizations and key individuals in the coming days.

Bawag P.S.K. Failed to Disclose Other Losses

YIKES!!! Earlier this week news emerged that Bawag P.S.K. Group, the Austrian bank that has been tied to the Refco Inc. fraud, had failed to disclose losses totaling more than $1.2 billion over a number of years after investments by the former chief executive officer’s son went sour. The Wall Street Journal reports that “the bank, as well as current and former executives, are now under investigation by the Austrian regulator, the Financial Markets Authority, for not informing regulators about losses run up by Wolfgang Flöttl , a New York-based investor and son of Bawag's former CEO, Walter Flöttl. The younger Mr. Flöttl used a €350 million loan from Bawag to offshore companies he controlled in the Caribbean island of Anguilla to make a highly leveraged bet in the foreign-currency markets that went bad, the bank said Friday. Between 1995 and 2000, investments made by Mr. Flöttl resulted in losses of about €1.3 billion in total, the bank said. Bawag Chairman Guenter Weninger said at a press conference that after he was informed of the losses by the bank's management board, they decided to write down the losses over a number of years and to keep them under wraps.” The article continues with the following amazing information:

Bawag, Austria's fourth-largest bank by assets, is owned by Austria's largest trade union, the OEGB. Bank executives masked the losses of about €1.3 billion with the help of a guarantee provided by the trade union and then failed to inform the regulators, the bank said. Mr. Weninger said no one asked him, so he didn't inform anyone.