NEW YORK, Aug. 27, 2007 (PRIME NEWSWIRE) -- The Refco Litigation Trusts announced today that they have filed a lawsuit in New York on behalf of 75 Foreign Exchange ("FX") customers charging that Refco Inc.'s legal and accounting advisers knowingly assisted corrupt Refco insiders in looting customer assets deposited with Refco. The lawsuit, filed in New York State Supreme Court, names Mayer, Brown, Rowe & Maw LLP ("Mayer Brown"), Grant Thornton LLP ("Grant Thornton"), Ernst & Young LLP ("Ernst & Young"), and the corrupt Refco insiders as defendants. The lawsuit seeks over half a billion dollars in damages and penalties for the defendants' role in committing and aiding in the fraud, breaches of fiduciary duty, and conversion through which Refco FX customer funds were misappropriated.
The lawsuit provides a thorough description of the manner through which the Refco insiders, "with the knowledge, active participation, and substantial assistance" of Mayer Brown, Grant Thornton, and Ernst & Young, fraudulently induced FX customers to entrust their funds with Refco's unregulated broker-dealer, Refco Capital Markets ("RCM"), and "secretly deployed" these customer assets as a "personal piggy bank," "to fund other Refco businesses and . . . keep the Refco house of cards from collapsing."
As alleged in the complaint, the Refco insiders caused the customer assets to be "upstreamed," "side-streamed," and "down-streamed" to other Refco entities that "lacked the intent and/or the financial wherewithal to repay the siphoned funds" and were made "without compensation, security or collateral (and) without assurances that the funds would or could be repaid on demand or at all by the Refco entities that received them."
The purpose of the entire scheme, the lawsuit alleges, was to dress up Refco's financial condition so as to allow the Refco's insiders to sell their interests at fraudulently inflated prices.
Specifically, the lawsuit alleges that: * Grant Thornton "completely abandoned its obligations of independence, learned first-hand of the fraud, and then aided and abetted that fraud by, among other things, continuing to provide clean audit opinions in the face of grotesque accounting manipulations;" * Grant Thornton provided unqualified audit opinions on RCM's financial statements despite knowing these statements mischaracterized the siphoned customer assets as a "receivable from customers" and that the transfers of FX customer funds "were simply extractions of money, with no collateral," were not made in the "normal course of business," and were made to Refco affiliates that "lacked the intent and/or the financial wherewithal to repay the stolen assets;" * Mayer Brown advised Refco and RCM regarding the Refco insiders "fraudulent scheme to attract and siphon RCM customer funds by purporting to maintain RCM as an unregulated offshore broker-dealer despite the fact that after closing its Bermuda operations in late 2001, RCM conducted all of its activities in the U.S.;" * Mayer Brown, "over the course of five years . . . drafted virtually all of the documents for" fraudulent "round trip" loan transactions at the end of every relevant reporting and audit period (and the unwinding of those transactions days later) that were solely designed to conceal Refco's trading losses, inflated expenses and uncreditworthy financial condition; * Ernst & Young willingly "prepare(d) false tax returns," had complete knowledge of the scheme and "actively assisted" the Refco insiders in hiding Refco's "bad debts," acknowledging internally that it could be "an accessory to some type of fraud."
Marc S. Kirschner, Trustee of the Refco Litigation Trusts, said, "This is the third lawsuit filed by the Refco Litigation Trusts, which have a broad mandate to pursue claims on behalf of Refco and its creditors and are committed to achieving a full and speedy recovery of the massive damages caused to Refco and its creditors by numerous parties. The Trusts intend to bring additional lawsuits, in addition to continuing to vigorously pursuing the claims it has filed to date, to seek redress for the harm caused to Refco and its creditors."
The complaint was filed by Quinn Emanuel Urquhart Oliver & Hedges.
About the Refco Litigation Trusts
The two Refco Litigation Trusts were created under the Refco Plan of Liquidation, which became effective on December 26, 2006. Marc S. Kirschner, the former Chapter 11 Trustee for Refco Capital Markets LLC, serves as Trustee for the Trusts. The primary purpose of the Trusts is to pursue all Refco estate claims and claims of certain electing creditors against third parties, with recoveries to be distributed in accordance with the terms of the Refco Plan of Liquidation. The Trusts have $25 million of funding to support their pursuit of such claims. Since February 2007, the Trusts have been engaged in a comprehensive investigation of potential claims against third parties. The Trusts have now filed three lawsuits against third parties involved in the Refco frauds.