PERHAPS it is very difficult to spot when hundreds of millions of dollars are not really where they are supposed to be. Perhaps, when Refco was launched on the stock market just two months ago those organisations involved in bringing it to market really had made all the necessary inquiries are were perfectly happy about the state of the company’s finances.

But some of those who piled into Refco shares will take some convincing that all due diligence had been applied before the prospectus was prepared. Some of them may even have read the prospectus, beyond noticing that the establishment organisations behind it were Goldman Sachs, Bank of America and CSFB. They may have been comforted by the fact that auditors Grant Thornton had signed off the numbers. Those with an unfortunate tendency for remembering such things might have recalled that Grant Thornton’s name had cropped up unflatteringly in connection with Parmalat, the dairy business that dematerialised into a multi-million fraud. But Grant Thornton itself had been at pains to assure everyone that the Italian operation which unfortunately shared the same name as the partnership was really nothing at all to do with the Grant Thornton that could be relied upon to conduct a thorough corporate audit.

Potential investors who turned the pages of the Refco prospectus would have found, when they reached page 13, that this was not an investment without risk. But the risk factors so studiously laid out omitted to mention the fact that the chief executive might have been involved in complicated financial schemes which meant that the books were not quite as they seemed. On the contrary, among those risk factors cited was: “Our future success depends to a significant degree upon the continued contribution of our management team, particularly our president and chief executive officer, Philip Bennett.”

Well, that risk has now been realised. Mr Bennett has been ushered out and is not likely to be involved in commodities and futures trading for some time to come.

For those outside the markets, grasping how a business such as Refco can have a market value of almost $4 billion is not easy. Cynics might recall that Enron’s business model seemed somewhat difficult to understand, but if clever mathematicians could make millions trading raindrops, then perhaps it was worth taking a punt in the shares, they reasoned. Now they know better. That, however, did not stop enthusiasm for Refco stock pushing the price up by a quarter from its $22 float price in the first day’s trading.

But once news of Mr Bennett’s dubious dealings became public, confidence in the company vanished. It is hard to see how it might be returned. Instead, those who have traded with the company are clamouring to get their cash back for fear it might evaporate.

The risk factors in the company’s prospectus did spell out that: “Our compliance and risk management methods might not be effective, which could increase the risk that we are subject to regulatory activity or litigation or otherwise negatively impact our business.”

How true. But investors can rightly query whether the risk factors should include a line to the effect that “No one really wants to take responsibility for anything that might be written here. Buyer beware.”

New leaf

KATE SWANN is demonstrating the difference that a bit of good housekeeping can make to a business. Since she arrived at WH Smith, she has been vigorously clearing out costs and the more closely she has peered into corners of the company, the more excess expenditure she has found. It has helped her turn in some tidy profits after last year’s one-off restructuring costs.

Growing the top line at WH Smith is proving rather harder. Although Ms Swann received something of a heroine’s greeting yesterday, shares in the company rising by almost seven per cent in a falling market, the like-for-like sales in the retail chain were off by two per cent in the year to the end of August. Supermarkets continue to wade into the company’s territory but Ms Swann remains convinced that she can keep them at bay by providing choice and depth in the chain’s key product areas.

It is a more credible strategy than the group has had for years even if beating the supermarkets cannot be a certainty.

The good housekeeping has extended to taking a major step towards sorting out the company’s pension fund difficulties. Swapping the fund largely out of equities into a carefully constructed package of interest-rate based derivatives enables the company to budget for ridding itself of the deficit. Then the private equity bidders might return.

Food warning

FRANCE’S warning shot to Peter Mandelson, the EU Trade Commissioner, is a sign that the World Trade Organisation negotiations to open up farm trade are getting serious. The EU’s top producer is worried.

America and the EU both offered impressive sounding cuts in domestic support this week but these owe more to smoke and mirrors than genuinely dismantling protection. Pascal Lamy, the French former EU Trade Commissioner who now heads the WTO, has made it clear that more will be needed to permit a trade round to be agreed in December. There must be real tariff cuts to allow in food from developing countries as well as the eventual end of export subsidies, which has already been virtually agreed.

Jacques Chirac has publicly ruled out tariff cuts that might destroy his Government. Gordon Brown insists that all farm protection must be abolished to make poverty history. Mr Mandelson’s necessary balancing act was rather cruelly exposed at the Commons European Scrutiny Committee yesterday. He must deliver real cuts now but ending all farm protection could take even longer than the half century needed for textiles.

Wedding bells?

IT IS more than 40 years since Hilton Hotels Corporation sold the rights to the Hilton name outside the United States. In recent years, HHC has held regular talks with its British counterpart, Hilton Group, to see if the divorce might be reversed.

After several false starts, a marketing alliance was agreed in 1996. Now, after that nine-year engagement period, it seems that they are almost ready for the wedding ceremony. At least there will be no shortage of bridal suites in which to celebrate the joining together of the happy couple.

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