U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20402 / December 18, 2007
U.S. Securities and Exchange Commission v. Joseph P. Collins, 07 CV 11343 (GEL) (S.D.N.Y. filed December 18, 2007)
SEC Charges Mayer Brown Partner Joseph P. Collins With Aiding and Abetting Refco Disclosure Fraud
The U.S. Securities and Exchange Commission (the Commission) today filed a civil injunctive action in the United States District Court for the Southern District of New York against Joseph P. Collins, a partner at the law firm of Mayer Brown LLP. Collins was the longtime, primary outside attorney for Refco Group Ltd. The Commission's complaint alleges that Collins substantially assisted Refco Group Ltd. and its corporate successor Refco Inc. (hereinafter, together Refco) in their failure to disclose hundreds of millions of dollars in related party indebtedness and related party transactions. The complaint alleges that Collins thereby aided and abetted Refco's violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b 5.
The Commission's complaint alleges that Collins, in the course of representing Refco, learned that Refco Group Holdings, Inc. (RGHI), a non-Refco entity controlled by Phillip R. Bennett, Refco's chief executive officer, owed Refco hundreds of millions of dollars. In addition, the complaint alleges that Collins worked on, and oversaw other attorneys' work on, short-term transactions that occurred regularly at the end of Refco fiscal periods from February 2000 through May 2005. In these transactions, a Refco subsidiary, at the end of a fiscal period, loaned hundreds of millions of dollars to a third party that, in turn, was obligated to loan an equal amount simultaneously to RGHI. The transactions were reversed shortly after the fiscal periods ended. In these transactions, Refco assumed hundreds of millions of dollars in potential liabilities, in the form of guaranties and indemnification that it extended to the third parties to protect them from a default by RGHI or claims that might arise out of the loans.
In 2004, Refco placed $600 million in senior subordinated notes with certain financial institutions pursuant to an offering circular. In 2005, Refco commenced its initial public offering of common stock pursuant to a registration statement filed with the Commission. The complaint alleges that the offering circular failed to disclose RGHI's indebtedness, the period end transactions, and the related potential liabilities and that the registration statement failed to disclose the indebtedness and the potential liabilities. The complaint further alleges that Collins, while aware of the indebtedness and the transactions, reviewed and revised sections of the offering circular and the registration statement, without inserting requisite disclosures regarding the indebtedness, the period-end transactions, and the potential liabilities.
The complaint seeks a permanent injunction enjoining Collins from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. The complaint also seeks civil money penalties against Collins pursuant to Section 21(d)(3) of the Exchange Act.
In a related action, the U.S. Attorney's Office for the Southern District of New York today announced the filing of criminal charges against Collins for his role in the Refco fraud.
The Commission's investigation is continuing.
The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, the United States Postal Inspection Service, and the Commodity Futures Trading Commission.
See also Litigation Release No. 19716 (June 5, 2006).