Speaking to FO Week last week, the consensus of opinion at derivatives industry firms as well as law and accountancy practices was that Refco's trouble began with a major reporting irregularity at the most senior level, but crucially was not in itself derivatives related.
However, many manistream commentators have still felt the need to cite Refco's woes as another reason to be suspicious of complex financial instruments like derivatives. Some have compared it to the infamous Worldcom and Enron scandals but have failed to point out that, as one industry observer put it, Refco may as well have been a used-car dealer for all the relevance the alleged fraud had to dealing in derivatives.
But while futures and options may have had no actual part to play in Refco's alleged fraud, the type of business Refco was may well have contributed to the speed of its disintegration.
As David Matteson,...