Portfolio manager Jonathan Knight of hedge fund Liquid Opportunities did not take kindly to a Bloomberg News story that suggested that, somehow, his Longwood, Fla., firm was wrapped up in some "fake" or "phantom" bond business with Refco. Knight, in a press release, says that "the reporters 'guilt by association' implications are inappropriate." The original Bloomberg article made the suggestions based on the fact that the bond didn't have numbers that corresponded with any registered bonds. While it is true the bonds in question were not registered securities, Knight said, "they were private instruments each with a single lender and single borrower. As is the norm in such a circumstance, the instruments were not registered, either publicly or with a transfer agent" and thus would not reflect some identifying information.

Knight said in the release that the Liquid Opportunities offering in question was an offshore fund with non-U.S. investors holding mainly non-U.S. securities, so it did not have to register in the U.S., and because it handled "several Euro-denominated note instruments" from an investor, the firm "maintained a custody account" at Refco Capital Markets.

He adds, "No one, including no government official, has suggested that Liquid Opportunities had any reason to suspect any irregularity with regard to the instruments."