Rogers fights back by suing Refco

NEW YORK — Investment guru Jim Rogers suffered a black eye in the Refco Inc. collapse, but he’s now taking some swings of his own.
Rogers, who came to prominence in the 1970s as a co-founder, with George Soros, of the Quantum Fund, was dragged into the bankruptcy of commodities brokerage Refco after two funds that bear his name ended up as the fourth- and 13th-largest creditors to Refco in bankruptcy filings.

Such high-profile exposure was a blow to Rogers, who has a golden track record as a commodities investor and is the author of several books including “Investment Biker: Around the World with Jim Rogers” and “Adventure Capitalist: The Ultimate Road Trip.”
Rogers doesn’t directly manage the funds – the Rogers Raw Materials Fund and the Rogers International Raw Materials Fund – though they are overseen by Beeland Management Co., of which he is majority owner. (Beeland is Rogers’ middle name.)
The two funds have filed suit against Refco in bankruptcy court in New York, demanding the immediate return of $362 million in government securities and cash from Refco Capital Markets Ltd., an unregulated derivatives broker now in bankruptcy code.
The Raw Materials Fund, which is the fourth-largest creditor in the Chapter 11 case, is owed $287.4 million. The Rogers International Raw Materials Fund is owed $75.2 million.
In the suit, the funds charge that Refco “deceitfully” moved their assets to Refco Capital from segregated accounts at Refco before the bankruptcy filing Oct. 17.
In addition to the money involved, the suits may well help Rogers save face.
Don Cassidy, an analyst at Lipper Inc., the Denver-based research arm of Reuters PLC, said he thinks it is “fairly important” to Rogers’ reputation to prevail with the lawsuit. Rogers is known as a risk-taker, but investors won’t necessarily forgive and forget.
“He’s a player, not for widows and orphans,” said Cassidy. “Even so, ‘scandal,’ ‘fraud,’ and ‘bankruptcy’ are words that resonate with people. Even if you’re known as a risk-taker, people tend to say, ‘Well, you should have figured that out, you shouldn’t have been holding so much Refco.'”
In short, Cassidy said: “People tend to remember the dog that bites, not the dog that’s well behaved.”
For the Rogers funds, the issue is less one of a bad bet than one of Refco moving around assets without the funds’ clearance. According to court papers, Refco “swept” $340 million of the funds’ government securities and $22 million in cash from Refco LLC, then deposited it in unregulated Refco Capital Markets before putting the unit into Chapter 11.
The Rogers funds “specifically” authorized a transfer of the assets only into segregated accounts at Refco LLC, court papers said.
The funds said they need their assets to meet potential margin calls to support their futures positions. Without the assets, the funds could be forced to liquidate their positions.
The funds’ assets – consisting of futures positions, margin funds and government securities – were transferred to Refco from Man Financial Inc. over the last week of September and the first two weeks of October. Futures brokerage Man Financial is one of several firms reportedly considering a bid for all or parts of Refco, following private-equity firm J.C. Flowers & Co.’s decision to abandon its offer for Refco’s futures unit.
Being so involved in the Refco collapse isn’t necessarily a death knell for Jim Rogers. Russel Kinnel, an analyst at Chicago investment-research firm Morningstar Inc., said he doesn’t know the details of the case. But he added, in general, how hurt a reputation ultimately is “depends on the amount of damage done to the funds and circumstances, but all of that changes on a case-by case basis.”
And, indeed, investors who have backed Rogers in the past have done well.
“To me, the measure of how intelligent an investor is is the number of correct ideas he has over a long period weighed against his mistakes,” said William Fleckenstein, president of Fleckenstein Capital and manager of a hedge fund. “He’s got an enormously high batting average. He’d make Ted Williams look like an amateur if you were just comparing batting averages.”
Winning the Refco lawsuits would make any discussion of Rogers’ reputation moot.
“It would be nice for Rogers to be able to prevail, for him to say that Refco pulled this quickie right before the fall,” said Lipper’s Cassidy.
Source: AP via Seattle Post Intelligencer

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