Bankruptcy

Legal Work on Refco May Cost Mayer Brown

By J. Michael McBride

Mayer Brown partner Joseph Collins has become the target of federal prosecutors and charged with playing an “‘active and crucial part in perpetrating the Refco fraud.’” Collins, the chief outside legal counsel for Refco, maintains that he had no knowledge of the enormous fraud taking place within the company. Collins’ indictment makes him the fifth person charged in the Refco case although he is the only company outsider. On top of these criminal charges, a separate civil lawsuit filed by the trustee of Refco seeks a settlement of $2 billion against the firm.

Staring in 2000, Collins allegedly began documenting the large, short-term loans that Refco gave to its affiliate companies to create massive internal debt. The net effect of these transactions was supposed to hide the debt from the public. As a result, the prosecution claims that Collins had a direct knowledge of the events taking place and aided the fraud. While lawyers working for other failed companies such as Enron escaped blame, Collins case differs because he was the only attorney working on the Refco case. A former Enron prosecutor explains “‘If you have 10 people in a law firm involved, it’s not the same as one person involved in the totality. It’s harder to show criminal intent....There’s safety in numbers. That’s the reality.’”

So far, Collins maintains his innocence and is supported by those who knew and worked with him. His associates describe him as a very scrupulous, quiet, hard working man with an impeccable record and reputation. Collins even offered to take a polygraph test, which he passed, although the court recently refused to allow it to be used in his defense. This current criminal lawsuit comes at a bad time for Mayer Brown following their last malpractice suit in 2005 that ended in a $100 million payout. Currently the trustee of Refco is also seeking a $2 billion settlement in a civil lawsuit. The firm fears that another large settlement like the current case could throw them out of the Attorneys’ Liability Assurance Society.

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Chris

Full post as published by Texas Lawyer Blog on November 06, 2008 (boomark / email).