U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

SEC Charges Mayer Brown Partner Joseph P. Collins with Aiding and Abetting Refco Fraud


Washington, D.C., Dec. 18, 2007 — The Securities and Exchange Commission today charged the longtime, primary outside attorney for Refco Group Ltd. with aiding and abetting securities fraud violations at the now-defunct New York-based financial services and commodities brokerage firm.

The SEC filed a civil injunctive action in the U.S. District Court for the Southern District of New York against Joseph P. Collins, a partner at the law firm of Mayer Brown LLP, alleging that he substantially assisted Refco and its corporate successor, Refco Inc., as they failed to disclose hundreds of millions of dollars in related party indebtedness and related party transactions.

“Financial and disclosure frauds are often possible only if an attorney, an accountant, or some other outside professional assists,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “The Commission relies on these professionals to act as gatekeepers to our markets. We will aggressively pursue individuals who ignore their professional obligations and instead assist in their clients’ violation of the federal securities laws.”

Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, said, “As a result of his longstanding relationship with his client, Collins was aware that Refco was hiding important facts from potential investors. Collins was in a perfect position to protect investors from being harmed, but chose instead to perpetuate the deception by actively assisting Refco’s fraud.”

The Commission’s complaint alleges that Collins, in the course of representing Refco, learned that Refco Group Holdings, Inc. (RGHI) owed Refco hundreds of millions of dollars. RGHI was a non-Refco entity controlled by Phillip R. Bennett, Refco’s chief executive officer. The complaint further alleges that Collins worked on, and oversaw other attorneys’ work on, short-term related party transactions that occurred regularly at the end of Refco fiscal periods from February 2000 through May 2005. In these transactions, a Refco subsidiary loaned hundreds of millions of dollars to third parties that, in turn, were obligated to loan equal amounts simultaneously to RGHI. Shortly after the ends of fiscal periods, the loans were reversed. Refco assumed hundreds of millions of dollars in potential liabilities in these transactions, 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 SEC’s complaint alleges that the offering circular failed to disclose RGHI’s indebtedness, the period end transactions, and the related potential liabilities. It also is alleged 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 SEC’s complaint seeks a permanent injunction enjoining Collins from violating the antifraud provisions of the federal securities laws. The complaint also seeks civil money penalties against Collins.

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.

# # #

For more information, contact:

Scott W. Friestad
Associate Director
SEC’s Division of Enforcement
(202) 551-4962

David Frohlich
Assistant Director
SEC’s Division of Enforcement
(202) 551-4963

  Additional materials: Litigation Release No. LR-20402



Modified: 12/18/2007