NEW YORK, Aug. 8, 2007 (PRIME NEWSWIRE) -- The Refco Litigation Trusts announced today that they have filed a lawsuit against private equity firm Thomas H. Lee Partners, L.P. ("TH Lee"), Thomas H. Lee personally, several TH Lee representatives who served as officers and directors of Refco, and related parties, pertaining to their role in the fraud and subsequent Chapter 11 filing by Refco Inc. and certain of its direct and indirect subsidiaries. The lawsuit, filed in the United States District Court for the Southern District of New York, seeks hundreds of millions of dollars in damages and penalties from TH Lee and the related parties for common law claims arising from breach of fiduciary duty, unjust enrichment and receipt of illegal dividends, as well as bankruptcy claims for fraudulent conveyances and preferences.
As alleged in the lawsuit in extensive detail, TH Lee knew far more about the serious problems at Refco than it has let on in its public statements to date. In particular, the lawsuit alleges that TH Lee uncovered numerous red flags about Refco and its officers in the course of its due diligence process prior to its leveraged buyout of Refco but did not follow-up with additional investigation because it was tantalized by the prospect of a successful initial public offering that would result in a big payday for TH Lee as quickly as possible. The lawsuit alleges, among other things, that TH Lee went forward with its investment even though:
* It was not able to obtain complete information from Refco management or Refco's auditors; * It was made aware of regulatory and legal problems at Refco going back many years; * It was not able to obtain documentation about the private ownership structure of Refco; * It learned that Refco management had hidden important facts from TH Lee; and * It became aware of allegations of impropriety at Refco by an unnamed source, referred to as "Deep Throat" by members of TH Lee, and failed to adequately investigate these allegations.
The lawsuit also alleges that after the leveraged buyout, when TH Lee was the controlling stockholder of Refco and Thomas H. Lee personally and certain representatives of TH Lee served as directors and officers of Refco, TH Lee received additional adverse information about Refco and its management team, but rather than investigate and fix these problems, TH Lee made a conscious choice to bury them. The lawsuit alleges that TH Lee pressed forward to a long-planned initial public offering of Refco so the private equity firm could enhance its reputation in anticipation of the launch of a new fundraising effort and line its pockets in breach of its fiduciary duty to creditors.
The lawsuit alleges that after the leveraged buyout: * TH Lee was aware that Grant Thornton's audits of Refco were ineffective; * TH Lee did not want to change auditors because the retention of a Big Four audit firm could lead to a restatement of Refco's financial statements and delay the planned IPO; * TH Lee expressed serious concerns about the abilities of the internal accounting staff at Refco; * TH Lee learned that Refco management had previously lied to the firm about the existence of a "horrendous" letter from Grant Thornton, which Refco management failed to provide to TH Lee during the due diligence process; * TH Lee learned that Refco management, including Philip Bennett, had lied to TH Lee about a profit sharing agreement; and * TH Lee was aware that Refco was making acquisitions without proper due diligence and nonetheless gave its approval to these acquisitions.
The lawsuit concludes that TH Lee had a conflict of interest and that "the story of TH Lee's misconduct is one of greed and a failure of integrity." The lawsuit seeks approximately $113 million in bankruptcy claims for fraudulent conveyances and preferences, restitution of more than $162.5 in proceeds from the initial public offering and compensatory damages for more than $670 million in liability incurred by Refco, and liability claims arising from TH Lee's role in approving $75 million in improper dividends.
Marc S. Kirschner, Trustee of the Refco Litigation Trusts, said, "The lawsuit filed today is the result of an extensive and ongoing investigation 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 by numerous parties. In addition to aggressively pursuing the claims asserted in the lawsuit filed today, the Trusts intend to bring an additional lawsuit against the TH Lee entities on behalf of certain securities customers of Refco Capital Markets, Ltd., and additional lawsuits against a number of other parties involved in the Refco matter to seek redress for the harm caused to Refco and its creditors."
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. In February 2007, the Trusts retained the law firms Quinn Emanuel Urquhart Oliver & Hedges, LLP and Milbank, Tweed, Hadley, & McCloy, LLP to assist in their work and, since then, have been engaged in a comprehensive investigation of potential claims against third parties.