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Refco Creditors Question PlusFunds Group's Ties

Reverberations from the collapse of derivatives broker Refco may have put PlusFunds Group on some shaky ground, according to Last month, Refco creditors questioned how the fund manager was able to move $312 million from Refco to a separate brokerage account at Lehman Brothers just days before Refco's $16.8 billion bankruptcy filing last October.

Attorneys representing creditors claimed the trade smacked of a too-cozy relationship between PlusFunds, which controls the rights and sale of Standard & Poor's hedge fund indices, and Refco, which managed and marketed one of its funds. A bankruptcy judge agreed, and ordered that the assets in question be frozen.

Now, new allegations accuse PlusFunds co-founder Christopher Sugrue of receiving cash and loans from the bankrupt Refco, according to PlusFunds' frozen assets have hindered other shops, including Rydex Capital Partners.

The judge's order essentially locked up the S&P Managed Futures Index Fund, known on the market as the SPhinX Managed Futures Fund. It tracks an S&P hedge fund index, and only PlusFunds has the right to license it. About 11% of the Rydex SPhinX fund is invested with PlusFunds, which, according to year-end SEC filings, means Rydex investors who wish to liquidate their shares must take an 11% loss, at least for now. Rydex has sought expedient redemption, and plans to incorporate its SPhinX fund into another Rydex product, the Rydex Absolute Return Strategies fund.

In a letter to shareholders, PlusFunds asserted that since U.S. Bankruptcy Judge Robert D. Drain ordered the funds to be frozen, redemptions are impossible. The firm noted that shareholders can only liquidate their shares quarterly, and that the next opportunity to do so will be in March. This offers time enough for the judge's order to be resolved before truly affecting shareholders, PlusFunds suggested in its Dec. 10 letter.

But Rydex is not waiting for court proceedings. An independent Rydex board is expected to vote this month on whether to roll the SPhinX fund into the Absolute Return Strategies Fund, according to The Baltimore Sun. If approved, the merger would be put to a shareholder proxy in February.

The Absolute Return Strategies Fund, unlike the SPhinX fund, is open-ended, allowing investors to sell at any point. The SPhinX Fund allows liquidity only quarterly.

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