Securities Law

Mayer Brown Partner Sued—and Charged—by SEC in Refco Case

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Updated:: The SEC filed civil and criminal cases today against a partner at Mayer Brown, accusing him of helping one of the world’s biggest commodities brokerages hide from investors information about debt that it was owed and related transactions.

Joseph P. Collins, 57, allegedly helped Refco Group Ltd. and its successor, Refco Inc., hide hundreds of millions of dollars in debt owed to the company, reports the Associated Press. The debt was owed by another company controlled by Refco’s then-CEO, Phillip R. Bennett of Gladstone, N.J., according to the Securities and Exchange Commission suit, which was filed in federal district court in New York City.

There was a sharp drop in the price of the company’s shares after Refco went public in 2005 and the amount of debt became known, forcing Refco into bankruptcy. Shareholders eventually lost some $1 billion.

In its civil suit, the SEC is seeking injunctive relief and monetary damages, according to a SEC press release.

Meanwhile, the SEC also charged Collins criminally today, accusing him of aiding and abetting securities fraud violations at Refco, the press release states. A copy of the 11-count, 55-page indictment (PDF) is provided by the Wall Street Journal.

Bennett and other former executives of the company previously were charged criminally and are expected to go to trial in March, the AP article notes.

Collins, who was Refco’s primary outside counsel from 1994 to 2004, continued to work for Refco until October 2005, according to AP.

“As a result of his long-standing relationship with his client, Collins was aware that Refco was hiding important facts from potential investors,” said Scott Friestad, associate director of the SEC Division of Enforcement, according to the press release. “Collins was in a perfect position to protect investors from being harmed, but chose instead to perpetuate the deception by actively assisting Refco’s fraud.”

Collins did not immediately return an AP phone message.

Forbes reports that Mayer Brown says in a press release that Collins is on leave and that the firm is cooperating with investigators. “Our review of the evidence available to us shows that the firm acted in a professional, competent and ethical manner in its work on behalf of Refco,” it states.

Reuters: “Mayer Brown partner charged in Refco case”

Wall Street Journal (reg. req.): “Chicago Lawyer Is Indicted on Refco-Related Charges”

Updated at 6:40 p.m., CST.

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