Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, August 9, 2007

Refco Trustee Sues Private Equity Firm for Ignoring Signs of Fraud

The bankruptcy trustee for Refco, the failed commodities firm, is suing Thomas H. Lee, the private equity firm that took Refco public shortly before its collapse in 2005.  The complaint charges that Lee ignored red flags and concealed its extensive knowledge of serious problems at the firm in its haste to take the company public.  Investors lost more than $1 billion; prosecutors charge Philip Bennett, Refco's former CEO, with engineering the fraud the led to Refco's collapse.  The complaint alleges that after an informant told Lee that previous losses had been covered up, it declined KPMG's suggestion of an audit that would have exposed the fraud and instead accepted Bennett's assurances that there were no problems.  Lee denies the allegation and says that it was a victim of the fraud.  A few weeks ago, Lee filed suit against Mayer Brown, the law firm that represented Refco in the LBO.  NYTimes, Bankruptcy Trustee Sues Big Investor in Refco; WSJ, Refco Litigation Trust Sues Private-Equity Firm.

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