Reverberations from the collapse of derivatives broker Refco may have PlusFunds Group on some shaky ground, according to

Last month, Refco creditors questioned how the New York-based 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 the one of its funds.

A bankruptcy judge agreed, and ordered that the assets in question be frozen.

Now, new allegations accuse a major, but unnamed, PlusFunds stakeholder of receiving cash and loans from the bankrupt Refco, according to PlusFunds offered no comment on the most recent claim, according spokesman Ed Sweeney.

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. When it was launched, the SPhinX fund attracted investors because the required minimum investment is lower than other hedge fund products, and registered early with the Securities and Exchange Commission. The SPhinX fund 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 be frozen, redemptions are impossible. Sweeny 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, according to Joseph.

"Rydex is moving its platform in the direction of mutual a fund hedge funds anyway, and the PlusFunds problems provided the impetus for taking the case for changing the SphinX Fund to shareholders," company officials said in a Dec. 30 SEC filing.

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. And while the Absolute Return Strategies fund mimics strategies and goals of hedge funds, the fees are "significantly" less than the SPhinX find, according to Jeff Joseph, the managing director of Rydex's alternative investment group.

Finally, the Dec. 10 PlusFund letter, according to HedgeWorld, announced the resignation of PlusFunds President and CEO Paul Aaronson, General Counsel Patrick McMahon, and Chief Financial Officer Christopher Aliprandi.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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