Refco, Inc. Securities Litigation - Bernstein Litowitz Berger & Grossmann LLP

On October 1, 2007, Lead Plaintiffs RH Capital Associates LLC and Pacific Investment Management Company LLC and Plaintiff PIMCO Funds: Pacific Investment Management Series – PIMCO High Yield Fund filed a complaint adding Mayer Brown LLP (“Mayer Brown”) and Mayer Brown partner Joseph P. Collins (“Collins”) as named Defendants in the Refco, Inc. (“Refco”) securities class action pending before Judge Gerald E. Lynch in the Southern District of New York. Click here to view a copy of the Complaint.

According to the Complaint, at each step along the path that eventually led to Refco’s collapse, Refco’s former Chief Executive Officer Philip R. Bennett (“Bennett”) turned to his long-term “go-to-guy” at Mayer Brown, senior partner Collins, and other attorneys at Mayer Brown, to work with him in devising, documenting and concealing the massive fraudulent scheme that resulted in Refco’ false financial statements. The Complaint alleges that Refco, Collins and Mayer Brown devised a scheme whereby, just days before Refco closed its books for a given financial period, hundreds of millions of dollars would be “loaned” by Refco to third-parties, and pursuant to contracts drafted by Collins and Mayer Brown, the third-parties were required to simultaneously “loan” that same amount to an entity controlled by Bennett, which would use the proceeds to temporarily pay down a receivable it owed to Refco, leaving an apparently collectible receivable from a bona fide third-party on Refco’s books at period end. According to the Complaint, after the close of Refco’s financial period, the transactions would be unwound and the related-party receivable would be returned to Refco’s books, again pursuant to documents created by Collins and Mayer Brown.

The Complaint alleges that Mayer Brown’s and Collins’s involvement in this fraudulent scheme extended over a five-year period and involved at least seventeen different sets of end-of-period loan transactions, all of which are alleged to have been complete shams where, often, no money even changed hands.

Mayer Brown and Collins were referred to in Lead Plaintiffs’ Amended Class Complaint filed on May 5, 2006 as the “Law Firm” and “Attorney C,” respectively. Today’s Complaint adds them both as named defendants to the Refco Securities Litigation.

On June 29, 2007, the Honorable Gerard E. Lynch granted final approval to the partial settlement reached between Lead Plaintiffs and defendant BAWAG for a total of $140 million (the “BAWAG Settlement”). In doing so, Judge Lynch found the settlement to be fair, reasonable and adequate to the Class and, in particular, complimented Lead Counsel’s “zealous advocacy,” thorough briefing and good judgment in achieving the BAWAG Settlement.

As part of the final approval opinion, Judge Lynch also certified as a Class for settlement purposes “…all persons and entities that purchased or otherwise acquired Refco Group Ltd., LLC/Refco Finance Inc. 9% Senior Subordinated Notes due 2012 and/or common stock of Refco, Inc. during the period August 5, 2004 through and including October 17, 2005 and who were damaged thereby (subject to certain exceptions).”

April 30, 2007 - Judge Lynch Clears Way for Refco Class Action to Proceed; Denies Bulk of Defendants' Efforts to Dismiss Securities Claims

On April 30, 2007, the Honorable Gerard E. Lynch issued an 87-page opinion in which the Court denied the vast majority of the ten motions to dismiss filed by a total of twenty-eight defendants. Click here to view Judge Lynch’s Opinion. Among other things, Judge Lynch sustained Plaintiffs’ claims of securities fraud against Refco’s former auditor, Grant Thornton LLP, and the members of Refco’s Audit Committee. With the exception of one individual who was dismissed from the case (former Refco Group CFO Robert Trosten), the Refco Class Action will now proceed against all defendants named in Plaintiffs’ First Amended Consolidated Class Action Complaint, including the Individual Defendants, the THL Defendants, the Underwriter Defendants and defendant Grant Thornton LLP. Click here to see the identities of the defendants.

On March 5, 2007, the Honorable Gerard E. Lynch preliminarily certified as a Class “…all persons and entities that purchased or otherwise acquired Refco Group Ltd., LLC/Refco Finance Inc. 9% Senior Subordinated Notes due 2012 (CUSIP Nos. 75866HAAS and/or 75866HAC1) and/or common stock of Refco, Inc. (CUSIP No. 7566G109) during the period August 5, 2004 through and including October 17, 2005 and who were damaged thereby (subject to certain exceptions).” Judge Lynch also granted preliminary approval to the partial settlement reached between Lead Plaintiffs and defendant BAWAG and scheduled a hearing (the “Settlement Hearing”) to take place on June 29, 2007 at the United States Courthouse, 500 Pearl Street, New York, NY, 1007. The purpose of the Settlement Hearing will be to determine, among other things, whether the proposed settlement with BAWAG is fair, reasonable and adequate to the Class and whether it should be approved by the Court. Click here to view Judge Lynch’s Opinion.

June 5, 2006 - Lead Plaintiffs Announce Settlement With Austrian Bank BAWAG for Payment of at Least $108 Million in Cash and Cooperation Against Others Who Played Role in Refco Affair

On June 5, 2006, Lead Plaintiffs signed a settlement agreement with BAWAG. Pursuant to the agreement, BAWAG has agreed to pay to Lead Plaintiffs, on behalf of the Class, at least $108 million in cash, with the possibility of an additional payment of up to $32 million when BAWAG is sold in the coming months. In addition to the cash payment(s), BAWAG has pledged to cooperate with Lead Plaintiffs as they pursue the Class’ claims against other current (and prospective) defendants in the consolidated securities class action.