The Family Man Behind Refco's Woes


By Mark Morrison As Refco, the giant commodities broker, struggles for survival, one of the biggest questions is: How did so many smart-money people land in the middle of this mess?

The question applies to the firm's accountants at Grant Thornton, the savvy dealmakers at Thomas H. Lee Partners who gobbled up the biggest stake in the broker, the experts at lenders like Bank of America (BAC) who extended big-time credit, the whizzes at Wall Street houses like Goldman Sachs (GS) that led the firm's IPO two months ago, and the money managers at institutions like TIAA-CREF and Oppenheimer Funds that bought freshly issued Refco stock.

ROCK-SOLID VALUES. I can understand why. The answer is Phil Bennett, until last week Refco's chairman and CEO. Bennett was key to establishing Refco's credibility with all these financial pros. That was no mean feat, considering Refco is a player in the volatile and freewheeling commodities markets that has often been at the center of controversies and run amok of regulators. Add to that a whole series of scary facts in Refco's own offering statement (see BW Online, 10/17/05, "Refco's Painful Lesson for Investors").

As The New York Times' Gretchen Morgenson highlighted in her Oct. 16 column, Refco's prospectus disclosed that, in addition to glaring deficiencies in its accounting process, the firm was under investigation by both the U.S. Attorney in New York and the Securities & Exchange Commission and that it was extremely leveraged and spending little on critical information systems compared with other financial companies.

You see, I know Phil Bennett -- better than most journalists. We were personal friends when we were both living in the same New York City suburb -- Summit, N.J. -- for several years in the late 1980s. I came to see him as a bright, charming Brit who oozed sophistication and rock-solid values. It's no mystery to me how he gave Refco credibility and won the trust of all those smart money guys.

PRIVATE AND BUSY. Although I never had any professional dealings with Bennett as a journalist, I was a senior editor at BusinessWeek at the time, and he had recently joined Refco as chief financial officer. We and our wives would sometimes get together on social occasions. When Phil was ousted last week from his job at Refco and then arrested and charged with allegedly committing one of the biggest corporate frauds of all time, I was blown away.

My mind quickly raced back to a fall evening in 1989. My wife, Ellen, and I had taken Phil and his wife, Val, to dinner. Phil was his usual engaging and witty self, and the evening was a lot of fun. But that was to be the last time we heard from the Bennetts.

We didn't think much about the friendship ending abruptly. The relationship was never close, and the Bennetts, always very private, were extremely busy people who subsequently moved out of Summit to an estate in Gladstone, N.J.

Still, I thought I knew Phil pretty well. I remember first coming across him coaching grade-school soccer. Having grown up in England, he was one of the few parents who had a clue about the global game of football.

AMERICANIZED BRIT. He was politely amused that one of the other coaches resorted to a chess board as a tool to instruct his team. Phil, on the other hand, was a remarkable coach who would don the regulation shorts, jersey, and shin guards. He would race across the field to demonstrate all the positions, moves, and techniques. What really made him an exceptional coach, though, was his great patience with the kids. He was always there, always positive, and brimming with energy and enthusiasm -- a role model, really, for other parents.

In the mid-1980s we were invited over to dinner with the Bennetts by mutual friends. Phil tended to be pretty reserved at first. But by the end of the evening, he would steal the show with his knowledge and humor. He loved to talk about sports, business, and most of all politics. He was staunchly conservative, although not nearly as passionately so as his wife Val. He particularly enjoyed discussing American politics.

Whereas Val seemed British to the core, Phil had become Americanized. He was critical of many of Europe's economic and business practices and admired the flexible U.S. model.

After that, we were invited to the Bennetts' once or twice, and they came to our tent party celebrating the 40th birthdays of both myself and Ellen.

REMAKING REFCO. I always wondered how such an Honor Scout-like man with a British accent could be an executive in the raucous commodities business. From my days as a Chicago correspondent, I knew that Refco was famous in the markets for its wild and woolly culture.

Long before it came out that Refco played a role as broker in Hillary Clinton's commodities-trading windfall, the firm and its co-founder, Tom Dittmer, frequently sparked controversy. I figured that Phil, whom Dittmer once described as having bullet-proof credentials, was the guy who was hired to remake the Refco culture and add stability and credibility as the firm dramatically spread into global markets.

He certainly accomplished that for many years leading up to the successful public offering -- and Phil must have been flying high until the sky started falling (see BW Online, 10/12/05, "Can Refco Get Off the Ropes?").

THE UNKNOWN BENNETT. Most of his friends in Summit knew there were two Phil Bennetts -- one, the committed father and family man who recently led a $40 million fund-raising campaign for Pingry School. The second Phil Bennett was the ambitious and hard-driving business executive who, shortly after the last soccer game on Sunday, would head for the corporate jet to pursue deals in Europe and the Mideast.

Turns out there's a third Phil Bennett we didn't know of, according to auditors, regulators, and federal prosecutors -- a Phil Bennett who was capable of a massive fraud, as the government charges (see BW Online, 10/12/05, "Following Refco's Bouncing Debt"). Phil isn't talking. Neither is his lawyer.

If we ever get a chance to have another dinner with the Bennetts, I have my questions ready, but this time as a journalist. The first would be, "Phil, what were you thinking?"

National correspondent Morrison was BusinessWeek's managing editor from 1993 to 2005


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