AT the Asia Society’s headquarters in Manhattan, a select group of Wall Street’s biggest players gathered last month to celebrate the fifth anniversary of a deal half-jokingly described as the “second-best venture-capital deal in history”.

Back in 2000, the party’s host, J Christopher Flowers, and Timothy Collins had bought Japan’s troubled Long Term Credit Bank (LTCB) for $1.2 billion (£676m). Once one of Japan’s most revered institutions, LTCB was sinking in a sea of bad loans.

The pair shook up the Japanese financial community, got the Japanese government to accept $10 billion in returned loans and then dumped a further $27 billion in bad loans. The bank was renamed Shinsei — Japanese for renaissance — and floated. It is now worth $7.6 billion. No wonder they were celebrating. Flowers is thought to have personally made more than $1 billion from the deal.

Bankers joke that the only venture-capital deal to rival LTCB is Dutch trader Peter Minuit’s purchase of the island of Manhattan from Native Americans for $24 worth of trinkets in 1626.

Last week Flowers spotted another opportunity to make a silk purse out of a sow’s ear in Refco, the broking firm that was brought down by a $425m alleged fraud.

His company, JC Flowers, is leading a group that has agreed to pay $768m, 3% more than the net capital of the brokerage business it is acquiring. The rest of Refco is in the bankruptcy court, the fourth-largest bankruptcy in US history. But Flowers may end up buying that, too.

From the start, Refco looked like a classic Flowers purchase.

“I’m embarrassed to say that I hadn’t thought of it until someone brought it up,” said the former Goldman Sachs banker. But once it had been suggested, it took about “10 seconds” for him to decide to get involved. “Here is a very good firm whose problems are extraneous to the business,” he said.

Refco collapsed after it emerged that its British-born chief executive, Phillip Bennett, secretly owed the firm nearly half a billion dollars. Bennett was placed on indefinite leave, charged with fraud and confined by the authorities to his New York apartment.

Last week Jacob Goldfield, another former Goldman executive who would serve as vice-chairman of Refco, was in London reassuring clients that Refco was a going concern.

It seems to have worked. “The decline in customer deposits has ended. Which is very encouraging,” said Goldfield.

Now Flowers is assessing whether or not to take on the rest of Refco’s more controversial businesses in securities, derivatives and foreign exchange. The plan will be to reanimate Refco — probably under a new name — and float it off again, further swelling Flowers’s coffers.

It’s not a done deal yet. Flowers may face competition from the Blackstone Group, one of the world’s biggest buyout firms.

But Flowers has the lead. A rival bidder would have to pay a break-up fee of 2.8% of the offered price ($21.5m in this case) and at least $20m more than the earlier offer, according to a recent Refco regulatory filing.

On Wall Street, bankers have argued that the scandal is confined to Refco and is unlikely to have a wider effect on the market.

“This is a garden-variety scandal. This kind of stuff just happens,” said Flowers.

Others disagree. Professor Michael Greenberger of the University of Maryland believes Refco could be the harbinger of a far bigger problem.

Greenberger, a former Justice Department lawyer and director of the Commodity Futures Trading Commission, said that trouble in Refco’s unregulated businesses had brought down the company.

“It’s far too early to say what the long-term effect of Refco will be,” he said.

What does seem certain is that some of Wall Street’s finest institutions failed to assess adequately the situation at Refco.

Flowers’s old firm, Goldman Sachs, led Refco to the stock market just 10 weeks ago. Now the bank and Grant Thornton, Refco’s accountant, along with Thomas H Lee, its largest outside investor, face a flurry of legal action.

Refco’s bankruptcy filing listed more than $3.4 billion owed to the 50 largest creditors. Topping the list was a $451m claim by Bawag, an Austrian bank that lent money to Bennett, and two funds affiliated with Jim Rogers, the best- selling author and investor who started Quantum Fund with George Soros.

Perhaps in five years’ time Refco will give Flowers a reason to throw another party.

Given how many big names have been burnt by Refco, the invites may be a problem.

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