It gets worse

Gretchen Morgenson has a devastating column in today's NY Times about the sophisticated investors who put their - and our - money in Refco. She quotes from the prospectus used in the August IPO. Some excerpts from that document:

• Refco had no "formalized procedures for closing our books". This is a multi-billion dollar company and they can't close their books in an organized fashion?
• Refco was deficient in its ability to prepare financial statements "that are fully compliant with all SEC reporting guidelines on a timely basis". They, a financial company, are slow in meeting SEC reporting requirements?
• Refco seems to have been upfront in the prospectus. They even mentioned that they were under investigation by Spitzer and the SEC. And, that despite the CEO of Refco Securities facing suspension from his supervisory duties, he would remain with the firm "in his current capacities". So, you're telling me that I should invest in you even though you've violated the rules, got caught doing so and will keep doing it?
  

And then she looked at the numbers:

• Equity was .3% of assets. Other financial companies, such as Bear Stearns, are closer to 3.5%.
• Off-balance sheet derivatives went from $69 billion in February 2004 to $150 billion in May 2005. This statement from a firm that admits it can't close the books properly.
• Capital expenditures, which are largely for technology, were 1% of net revenues. Other firms in the business spent 3.5%
  

What the !@#$ were these sophisticated investors doing in deciding whether or not to invest in Refco? How could the underwriters have the gall to sell this piece of shit to anyone?