VR-related entities were named in Refco's Chapter 11 suit as creditors with exposure of $472 million, making VR the biggest creditor of Refco, which is the largest independent U.S. futures brokerage.
But Richard Deitz, founder and president of distressed debt specialist VR, said the money was being held in custody by Refco and as a result VR should not be included in the creditor list.
"Those assets are our assets," Deitz said. "We vigorously reject the notion that any assets form part of the estate of Refco."
Kevin Starke, New York-based senior equity analyst at Weedon & Co., said that VR -- along with other account holders at Refco's capital markets unit -- stood a fair chance of persuading the bankruptcy court not to rule it as an unsecured creditor.
"They were all making similar arguments that, while Refco Capital Markets might have legal title to those accounts, it doesn't have an equitable interest," he said. "That's an argument that may carry the day," added Starke, who was in court observing the case on Thursday.
Deitz said the hedge funds run by VR were not at risk. He declined to say how much money VR had under management, but financial sources in Moscow have put the total at about $600 million.
"Absolutely, our funds can survive. None of our funds are in jeopardy," he said.
Refco's crash was sparked earlier this month when the company suspended CEO Philip Bennett after discovering that he had hidden a $430 million debt to the company. Bennett has been arrested and charged with securities fraud.
Refco's bankruptcy filing names VR Global Partners as its No. 3 creditor, owed $380 million and behind Austrian bank BAWAG and U.S. Wells Fargo, documents submitted to the New York Southern District bankruptcy court showed. Adding two other creditors listed at its address in the Russian capital, VR's total exposure rises to $472 million, putting it on top of the list.
Deitz challenged the Refco version of events, however, and said he would make a counterfiling.
"You will see quite quickly a filing in the bankruptcy court regarding our position," he said.
Financial sources said Deitz had briefed investors -- its clients include investors in Moscow, London, Geneva and New York -- on Thursday in a conference call and that his team was working flat out to contain the crisis.
"The fundamental problem is, are the funds segregated or are they Refco's?" said one Moscow-based financial source, who asked not to be identified.
The sources said VR's mainly Russian team had regularly scored well in hedge fund performance surveys, while the outfit was shortlisted for an award this year by industry journal Hedge Funds Review.
Deitz, an alumnus of Yale University, is a bond trader who started his career at Credit Suisse First Boston in the United States and moved to Moscow in the mid-1990s to co-found brokerage Renaissance Capital. Deitz and Renaissance Capital parted company after Russia's 1998 financial crash and he launched his own hedge fund outfit in 1999.
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