What is the name of your state?
New York.
You may know that one of the largest futures brokers, Refco Inc., filed Ch11 BK protection to the Bankruptcy Court for the Southern District of New York last year. Many retail investors all around the world opened accounts at Refco FX Associate (RefcoFX hereafter), one affiliate of Refco Inc., to trade currencies, or called forex spot. After Refco Inc. filed BK protection, all funds of those retail investors in RefcoFX were frozen by the Court. Those retail investors were told by RefcoFX they were unsecured creditors of RefcoFX and RefcoFX began to distribute POC to them several days ago. However, most of those retail investors thought they should not be regarded as unsecured creditors, instead, they were only account holders and the funds which they deposited to RefcoFX belonged to them and RefcoFX just safekept the funds.
Since Refco Inc. has many other very large creditors (e.g. Bank of America etc.) and unsecured creditors (e.g. Jim Rogers etc.), if those retail investors were to be judged as unsecured creditors, they would almost for sure receive little if not nothing, from the estate of Refco Inc..
Are they unsecured creditors? I read the "Trader Agreement" which was signed by those retail investors when they opened accounts at RefcoFX. One term of this agreement said:
"COLLATERAL AND LENDING AGREEMENT. All funds, currencies and other property of Trader which RefcoFX or its affiliates may at any time be carrying for Trader (either individually, jointly with another, or as a guarantor of the account of any other person,) or which may at any time be in its possession or control or carried on its books for any purpose, including safekeeping are to be held by RefcoFX as security and subject to a general lien and right of set-off for liabilities of TRader to RefcoFX whether or not RefcoFX has made advances in connection with such funds, currencies or other property and irrespective of the number of accounts Trader may have with RefcoFX. RefcoFX may in its discretion, at any time and from time to time, without notice to Trader, apply and/or transfer any or all funds, currencies or other property of Trader between any of Trader's accounts. Trader hereby also grants to RefcoFX the right to pledge, re-pledge, hypothecate, invest or loan, either separately or with the property of other Traders, to itself as broker or to others, any securities or other property of Trader held by RefcoFX as margin or security. RefcoFX shall at no time be required to deliver to Trader the identical property delivered to or purchased by RefcoFX for any account of Trader. The purpose of the Lending Agreement is to allow RefcoFX to use the currencies, property, depository receipts as collateral."
Does this term, especially the highlighted part make an account holder ("Trader" in the agreement) as an unsecured creditor when the brokerage firm becomes BK? I have seen many other brokerage firms have the same or similar term in their "trader agreement" and am told that such term is the standard of brokerage industry.
So, really unsecured creditors?
New York.
You may know that one of the largest futures brokers, Refco Inc., filed Ch11 BK protection to the Bankruptcy Court for the Southern District of New York last year. Many retail investors all around the world opened accounts at Refco FX Associate (RefcoFX hereafter), one affiliate of Refco Inc., to trade currencies, or called forex spot. After Refco Inc. filed BK protection, all funds of those retail investors in RefcoFX were frozen by the Court. Those retail investors were told by RefcoFX they were unsecured creditors of RefcoFX and RefcoFX began to distribute POC to them several days ago. However, most of those retail investors thought they should not be regarded as unsecured creditors, instead, they were only account holders and the funds which they deposited to RefcoFX belonged to them and RefcoFX just safekept the funds.
Since Refco Inc. has many other very large creditors (e.g. Bank of America etc.) and unsecured creditors (e.g. Jim Rogers etc.), if those retail investors were to be judged as unsecured creditors, they would almost for sure receive little if not nothing, from the estate of Refco Inc..
Are they unsecured creditors? I read the "Trader Agreement" which was signed by those retail investors when they opened accounts at RefcoFX. One term of this agreement said:
"COLLATERAL AND LENDING AGREEMENT. All funds, currencies and other property of Trader which RefcoFX or its affiliates may at any time be carrying for Trader (either individually, jointly with another, or as a guarantor of the account of any other person,) or which may at any time be in its possession or control or carried on its books for any purpose, including safekeeping are to be held by RefcoFX as security and subject to a general lien and right of set-off for liabilities of TRader to RefcoFX whether or not RefcoFX has made advances in connection with such funds, currencies or other property and irrespective of the number of accounts Trader may have with RefcoFX. RefcoFX may in its discretion, at any time and from time to time, without notice to Trader, apply and/or transfer any or all funds, currencies or other property of Trader between any of Trader's accounts. Trader hereby also grants to RefcoFX the right to pledge, re-pledge, hypothecate, invest or loan, either separately or with the property of other Traders, to itself as broker or to others, any securities or other property of Trader held by RefcoFX as margin or security. RefcoFX shall at no time be required to deliver to Trader the identical property delivered to or purchased by RefcoFX for any account of Trader. The purpose of the Lending Agreement is to allow RefcoFX to use the currencies, property, depository receipts as collateral."
Does this term, especially the highlighted part make an account holder ("Trader" in the agreement) as an unsecured creditor when the brokerage firm becomes BK? I have seen many other brokerage firms have the same or similar term in their "trader agreement" and am told that such term is the standard of brokerage industry.
So, really unsecured creditors?
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