Legal News

?I?ve Never Had a Case Where a CEO Has Cooperated Like This?

By Nathan Koppel

It’s been awhile since we’ve written about Refco, the commodities firm that collapsed in 2005 amid allegations that it committed fraud by improperly shifting debt off its books. The meltdown has led to indictments and a wave of civil suits. (Click here, here and here for earlier posts on Refco.)

Now, Refco’s former investors may have gotten a bit of extra ammunition in a securities fraud class action against the firm and its outside advisers, including its former lawyers (Mayer Brown), auditors and bankers.

Phillip Bennett (pictured), Refco’s former CEO, has met several times with the plaintiffs, educating them about Refco’s dealings with its outside advisors and “materially” strengthening the securities claims against Refco’s advisers, according to this letter filed today with a New York federal judge that is due next month to sentence Bennett for his role in the collapse. (Bennett pled guilty earlier this year to bank fraud and other charges.)

Here’s a Bloomberg.com article on the letter.

Sean Coffey, plainitffs counsel in the securities suit and one of the authors of the letter, told the Law Blog that the letter was designed to inform the sentencing judge of Bennett’s help. “It was like having another investigator on our team,” Coffey says. “I’ve never had a case where a CEO has cooperated like this.”

Coffey offers only scant details about what Bennett said. “He described . . .the intricate role Mayer Brown played throughout Refco’s corporate life,” he says.

Gary Naftalis, counsel to Bennett, declined comment, as did Mayer Brown.

Bennett’s cooperation is “unusual, but not unheard of,” says Andrew Frisch, a former federal prosecutor in Brooklyn, who is now a partner at LeClairRyan. “The defense rulebook says to talk as little as possible, so you don’t give prosecutors grist for making criminal arguments against you or subject yourself to greater civil liability.” But, he says, “helping out victims is a way of demonstrating true remorse and true acceptance of responsibility and that might significantly affect a judge’s decision at sentencing.”

Photo: Associated Press

Full post as published by Law Blog - WSJ.com on May 29, 2008 (boomark / email).