The Mother Of All Suits – Refco Does It Chicago Style

Refco Litigation Trusts File Lawsuit Against Legal, Accounting and Financial Advisers for Role in the Refco Fraud

“The Refco Litigation Trusts announced today that they have filed a lawsuit in Chicago charging that Refco Inc.’s legal, accounting and financial advisers knowingly assisted corrupt Refco insiders in looting Refco’s assets. The lawsuit, filed in the Circuit Court of Cook County, Illinois, names Mayer, Brown, Rowe & Maw LLP (“Mayer Brown”), Grant Thornton LLP (“Grant Thornton”), Ernst & Young LLP (“Ernst & Young”), PricewaterhouseCoopers (“PWC”), Credit Suisse Securities (USA), Banc of America, Deutsche Bank Securities, certain loan participants, and the corrupt Refco insiders as defendants. The lawsuit seeks over $2 billion in damages and penalties for the defendants’ role in committing and aiding in the corrupt Refco insiders’ fraud and breaches of fiduciary duty.”

Not satisfied to just sue those that the Refco bankruptcy examiner suggested, the Refco Litigation Trusts have sued the whole lot of them, including PwC, whose luck has now run out on this one.

Some choice bits:

“Mayer Brown structured and documented fraudulent “round trip” loan transactions at the end of every relevant reporting and auditing period (and the unwinding of those transactions days later) that were “like a street-corner shell game” solely designed to conceal trading losses and inflated expenses;

One of the underwriter defendants, during its purported financial “due diligence,” commented internally that it viewed Refco’s Chief Financial Officer as a “pathological liar,” yet it proceeded with an LBO and an IPO because of the enormous investment banking fees;

Grant Thornton, Mayer Brown and PWC participated in “conscious editing of SEC disclosure documents to conceal” a massive related-party receivable owed to Refco by a company controlled by Refco’s insiders;

PWC wrongfully validated deficient internal controls and, with knowledge of the fraudulent round trip loan transactions,participated in the falsification of Refco’s registration statements.

The WSJ Law Blog did an interesting job the other day of summarizing the money and time being spent to litigate Refco. In particular, it’s interesting T.H. Lee is suing as well as being sued.

Thomas H. Lee’s suit against a bunch of former Refco executives: In addition to Bennett, the private equity firm named Tone Grant, the former president of Refco, and Santo Maggio, the former CEO of Refco’s securities unit.

Thomas H. Lee’s suit against Mayer Brown: The Beantown buyout shop sued the Chicago law firm over its alleged role in a cover up at firm Refco. Lee, which owned more than half of Refco when it blew up, is represented by Weil Gotshal.

Trustee’s suit against Thomas H. Lee: Yesterday, the trustee for the Refco Litigation Trust sued Lee, saying the firm should have known about the fraud before it sold stock. The trustee of the Refco Litigation Trust is Mark Kirschner, who is represented by a team of lawyers at Milbank Tweed. Kirschner, who who headed up the bankruptcy department at Jones Day for many years before “he finally saw the light and left private legal practice” (his words), told the Times yesterday that he expected to file more lawsuits.”

Who says that litigation and courts are a waste of money? Who else could sort out the egos and the hubris associated with such a set of players?

3 replies

Trackbacks & Pingbacks

  1. […] fraud and declared bankruptcy. Bankruptcy examiner Joshua Hochberg produced a bang-up report that pointed to several parties where recovery was possible. The trustee is still litigating on behalf of the estate, although it […]

  2. […] is a favorite case of mine, since it is a Chicago case and also the first time I used the expression “big swinging sticks.”  I try to keep it […]

  3. […] Big 4 (and BDO, GT and RSM): How about relieving the uncertainty for your employees, clients and investors and let us […]

Comments are closed.