Mayer Brown, LLL, an international law firm specializing in commercial transactions and litigation, has agreed to pay an undisclosed amount to settle claims that the firm “aided a $1.5 billion fraud scheme that produced a flurry of criminal convictions.” The two parties agreed to a settlement last month.
The bankruptcy trustee for Refco, Inc., a now-defunct New York-based financial service company, which went bankrupt in 2005, claims that Mayer Brown, LLP “knew about and affirmatively aided a fraud against foreign exchange customers.” A New York federal judge dismissed the claims in 2010; however, the firm will now pay trustee Marc S. Kirschner in order to settle the claims.
Mayer Brown did not admit wrongdoing, but agreed to negotiate a “definitive settlement agreement” within five business days, and will make the payment no later than August 7, according to Law 360. The settlement brings to an end “a long-running dispute” over the Refco bankruptcy scandal.
The scandal began in October of 2005, when Refco announced that its CEO and chairman, Phillip R. Bennett, had hidden $430 million worth of bad debts from the company’s auditors and investors. On October 12, Bennett was arrested and charged with one count of securities fraud for “using US mail, interstate commerce, and securities exchanges to lie to investors.”
A week later, trading of Refco’s shares was stopped on the New York Stock Exchange. The company filed for Chapter 11 protection and was purchased by Thomas H. Lee Partners, LP a year later for $1.9 billion. Bennett was sentenced to 16 years in prison, and last year, a former Mayer Brown partner, Joseph P. Collins, was found guilty of “helping hide the $1 billion accounting fraud that destroyed brokerage Refco, Inc.”
The verdict is a strong and successful victory for securities litigation and victims of financial fraud. However, regulatory groups have a hard time pursuing securities fraud cases and it has been up to private plaintiff’s litigators to file suit.
Peter Mougey, securities litigation attorney with Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. commented that “the people running on these aren’t typically the regulators. They’re undermanned. Right now, there are private attorney generals through plaintiff’s litigators that are pushing the litigation out in front. There’s a minority of cases that the regulators are keying up and moving in on.”
Alisha is a writer and researcher for Ring of Fire.