NEW YORK (Bloomberg) — With Refco Group Ltd.'s survival threatened, owner Tone Grant lied to billionaire George Soros's hedge fund in 1997 and claimed Refco wasn't covering tens of millions of dollars in customer losses, a witness testified.

Former Refco executive Santo Maggio ended his second day on the witness stand yesterday at Grant's fraud trial. Testifying for prosecutors in a bid for leniency, Maggio said he, Grant and Phillip Bennett convinced Soros Fund Management LLC not to withdraw $260 million from Refco, after Soros heard rumours that Refco was assuming large loses suffered by Victor Niederhoffer. Niederhoffer testified two weeks ago that Grant agreed to cover his trading loss.

Grant "said the rumours weren't true," Maggio told jurors in Manhattan federal court, of an October 1997 meeting with Douglas Reid of the Soros fund. "Phil and Tone said the company was financially viable."

Maggio, the government's star witness, gave jurors the most detailed account so far of the fraud at Refco that saw investors lose around $2.4 billion. Refco had a unit in Bermuda, Refco Capital Markets.

Maggio testified about conversations in which Grant appeared to be aware of Refco's scheme to hide debt and said the firm used customer funds to run its business, make purchases and cover losses.

"Tone called to tell me he was very much involved in the company," Maggio testified about a September 1998 conversation with Grant. "He said he was still involved in all major decisions."

Maggio, who ran Refco's foreign currency and stock trading units, admitted that he lied repeatedly to lenders, bankers, auditors, customers, and employees, and often under oath in legal proceedings — all matters he'll be questioned about on cross-examination tomorrow. Maggio has pleaded guilty to fraud. Grant, 64, faces life in prison for defrauding Refco's lenders and investors. Prosecutors say he knew Bennett hid more than $1 billion in losses and expenses through fraudulent accounting. Grant says he was chiefly a salesman who didn't focus on the details of Refco's accounting and was duped by Bennett, the former chief executive who has pleaded guilty.

Once the biggest independent US futures trader, Refco collapsed in October 2005, two months after raising $670 million in an initial public offering. The New York-based firm filed the 15th-biggest bankruptcy in US history on October 17, 2005, after disclosing Bennett owed the firm hundreds of millions of dollars.

In his testimony, Maggio said Refco had already sustained large losses from trades by Asian customers in mid-1997 and from Niederhoffer in October 1997, when Soros's fund called to withdraw its funds. Maggio, aware that Refco would collapse if it couldn't deliver Soros's money, went to Bennett with the news.

"Phil turned white as a ghost," Maggio, in a raspy voice made worse by a head cold, told jurors. "There was no way we could come up with $260 million."

On Bennett's suggestion, Maggio set up a meeting with Reid, where he, Bennett and Grant said that Refco "did not cover significant losses" and that the firm's reputation would suffer if Soros withdrew funds. Soros agreed to keep its money at Refco.

"We dodged a bullet, dodged a missile," Maggio said. "Tone called and congratulated me on my help."

Refco began having severe "cash problems" because of the losses, and Maggio said he began lying to lenders to raise money. He complained to Bennett in late 1997 that there was "no light at the end of the tunnel". The next day, Grant called to tell him that "we have a plan, we'll get debt, we'll get through it together," Maggio testified.