It is alleged more than $500m of bad debts at Refco was hidden from investors by Mr Bennett, who is accused of shifting losses around the company using opaque offbalance sheet transactions.Mr Bennett's lawyer, Gary Naftalis, said in a court hearing on Wednesday that the authorities had "jumped the gun" by arresting Mr Bennett - a view not shared by the federal prosecutors who arrested him on Tuesday night because they feared he was a "flight risk".David Esseks, a government lawyer, said that just as the devastating announcement was about to be made, Mr Bennett was heard on tape saying he was going to Europe in two days. Investors are queuing up with lawsuits alleging they have been grossly misled about the state of its finances.Having been arrested, Mr Bennett is absent from the drama as it plays out in New York's downtown financial district. In a dramatic statement that appalled New York's business classes, Refco announced on Monday that its chief executive owed it $430m and admitted that company statements dating back to 2002 could not be trusted.Refco is one of the largest commodities and derivatives traders in New York,

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London, Paris and Asia. A Briton who graduated from Cambridge University, he had risen to the top of New York's multibillion-dollar futures trading market, and owned a Park Avenue penthouse, a mansion in New Jersey and a fortune worth almost $2bn.

In Manhattan business circles, he was nicknamed "The Closer". That was before the 57-year-old chief executive of Refco, one of the world's biggest futures brokers, became the central figure in one of the most spectacular financial scandals to hit New York since Enron. He faces a 20-year prison sentence and Refco stands on the brink of bankruptcy Mr Bennett is accused of orchestrating the type of complex fraud which another Briton, Nick Leeson, was found guilty of in 1995, and which brought down Barings Bank. Until this week, Phillip Bennett was a striking Wall Street success story. One police source said: "We're briefing the Mayor, ratcheting up security, talking about when to go public - and Homeland Security is downplaying the whole thing while their people are telling friends to stay out of the subways It's pretty bad.". The information has now been largely discredited.Police have confirmed to the New York Daily News that they were aware of the e-mails."Members of our corporate security network informed the police department of the e-mails' existence days prior to any announcement of the threat," said New York Police Department deputy commissioner Paul Browne.Some police are concerned that DHS officials were leaking information.

A small and select group of business and arts executives was tipped off in advance about the recent security scare over New York's subway system. Police have confirmed that days before most New Yorkers knew - and even before Mayor Michael Bloomberg was briefed on the alleged threat - this small group received e-mails from people claiming to have connections to Department of Homeland Security (DHS) officials. One e-mail said: "I do not send out mass e-mails as games or jokes so PLEASE take this seriously."As some of you know, my father works for Homeland Security, at a very high position and receives security briefings on a daily basis."The only information that I can pass on is that everyone should at all costs not ride the subway for the next two weeks in the major areas of NYC."Last week's scare was apparently based on information from an informant in Iraq, who said that three men, who had undergone terrorist training in explosives, were working with other operatives - possibly already in New York - to set off 19 bombs on the city's subways. "If the dome and Convention Centre had harboured large numbers of middle-class white people, it would not have been a fertile ground for his kind of rumour-mongering."Was the media content to go along with the unsubstantiated allegations of violence - even of baby rape (never mind crocodiles on Canal Street) - because it fitted a partially race-driven stereotype already scripted for New Orleans? If so, the press did the city and its people a terrible disservice, black or white."The mainstream media are only ever concerned with the negative stuff," contends Mr Banelli of the police union."The police were keeping this city alive during its darkest days under absolutely horrible conditions But that's not what the media wanted to focus on.". If the same hurricane had struck another big American city, wreaking the same degree of damage, would so many tall stories have been uttered and written about?Jim Amoss, the editor of the Times-Picayune, stirred controversy recently when he said not.