One Law Firm Leads in Creating A Maximum-Return
Litigation Strategy for Investors in Refco Fraud
The national law firm of Scott + Scott, LLC succeeds in attaining court-ordered temporary restraining order on $111 million of former CEO’s personal assets, potentially boosting investor recovery from REFCO DEFENDANTS by an additional 10%. “Our litigation strategy in this case is to bring equal justice and maximum return to all affected, regardless of person or institution,” says Scott + Scott partner Neil Rothstein.
Observers say the litigation has major international implications.
COLCHESTER, Conn. — ( Nov. 21) – Scott + Scott, LLC (http://www.scott-scott.com), which represents major institutional and individual investors in a securities class action first filed on October 11, 2005 in the United States District Court for the Southern District of New York against Refco, Inc. (“Refco”) (OTC: RFXCQ.PK) and individual defendants (Case No. 1:05-cv-08663-DC, FrontPoint Financial Services Fund, LP v. Refco, Inc. et al.), filed a more comprehensive and updated complaint on Friday, Nov. 12. (Case 1:05-cv-09611-UA, Weit v. Bennett et al.).
In Scott + Scott’s updated complaint for the class action — a case that has major international implications — the firm and its clients allege that during the Class Period, certain of Refco’s officers and directors, including now indicted former CEO Phillip Bennett, as well as the Company’s IPO underwriters and independent auditor, violated provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, by issuing a false and misleading Prospectus to investors as well as making false and misleading statements during the Class Period.
The complaint alleges that because of these securities law violations, investors were deceived out of over a billion dollars while Bennett personally made off with over $111 million.
“Although it was the industry leader in its field, Refco appears to have lacked significant financial controls,” notes Rothstein. “It is almost as if CEO Bennett felt he had a gigantic personal Paypal account with which he could do as he pleased, enabling him to zip money here and there around the world on a whim. It is all quite shocking.”
Because investors were deceived out of over $1 billion not just in the United States, but in Europe, South America, and other countries worldwide, there is significant interest on the part of foreign government officials, international financial regulators, and major foreign financial institutions in the conduct of the litigation.
“Financial institutions around the world were deceived in the fraud and are watching this case and the American judicial system very closely,” says David Scott, a name partner in the well-known securities litigation firm, which has offices in California, Ohio and Connecticut. “At a time when so much skepticism about the integrity and fairness of Corporate America has been expressed around the world, our firm views this case as an opportunity not just to maximize recovery for our clients, but to demonstrate to all investors in the U.S. market that they can still get the fairest justice in the American courts.”
The credibility of American courts to foreign investors is not of merely academic interest: Over the past several decades, America has swung from a creditor in the community of nations to a major debtor nation. “The ability of U.S. companies and indeed the U.S. government to borrow the large sums that we currently require is based in whole or part in the confidence that the worldwide financial community has in the effectiveness and impartiality of U.S. courts to provide equal justice to all, regardless of nationality,” says Rothstein.
The U.S. is currently $7.6 trillion in debt and accelerating at about $9,000 per second, says Rothstein. Of this debt, $ 4 trillion is owed to the world and foreign investors, not to mention the $ 9 trillion foreigners own in U.S. financial assets. “In all actuality the U.S. is the world’s largest debtor nation,” says Mr. Rothstein. “And the reason that other governments and foreign lending institutions are willing to lend to us derives from the fact that they know that our country is a government of laws and courts will be diligent in enforcing the legal rights of all investors equally and with due process of law. Hopefully, with our President’s enactment of the Sarbanes-Oxley Act of 2002, we will eventually begin to see investor confidence grow as the teeth of this law take hold. Only then will the ongoing presence of corporate and accounting fraud die down.
Rothstein notes that the federal budget deficit is approaching $413 billion, while the U.S. imports about $60 billion a month more than it exports. In 2003 it was estimated that China held $124 billion in American securities, which does not include an unknown accumulation of Treasury Bonds. Saudi Arabia holds a staggering sum nearing $1 trillion in the U.S. economy. “America’s dependence on foreign financial sources seems only to be increasing,” says Rothstein.
RESTRAINING ORDER ON $111 MILLION WILL BOOST CLIENT PAYBACK
As part of its strategy to maximize recovery for its clients, on October 31, David Scott sought and won from the federal court a temporary restraining order (“TRO”) prohibiting indicted REFCO CEO Bennett from accessing or moving $111 million in funds that he obtained by selling REFCO stock in the firm’s Initial Public Offering (“IPO”) earlier this year. The court granted the temporary restraining order freezing these funds in the Oct. 31 hearing, and arguments for a more “permanent” restraining order preventing the movement of those funds will be argued by Scott before the court on Dec. 1. Refco filed for bankruptcy protection on October 17, 2005.
“Including this $111 million as assets that can potentially be recovered by investors, the positive commencement of this litigation could boost recovery in this litigation by 10% or more,” says Scott, whose firm has recovered hundreds of millions of assets for clients in its past class action litigation.
UPDATED ACTION BY SCOTT + SCOTT, LLC
The updated complaint includes the defendants: Phillip R. Bennett, Gerald M. Sherer, Leo R. Breitman, David V. Harkins, Scott L. Jaekel, Thomas H. Lee, Ronald L. O’Kelley, Scott A. Schoen, and Nathan Gantcher (individual defendants), plus Credit Suisse First Boston, Goldman, Sach’s & Co., Grant Thornton, LLP, Banc of America Securities, LLC, Merrill Lynch, Pierce Fenner & Smith Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities, Inc., Sandler O’Neill & Partners, L.P., HSBC Securities (USA) Inc., William Blair & Company, LLC, Harris Nesbitt Corp., CMG Institutional Trading LLC, Samuel A. Ramirez & Company, Inc. Muriel Siebert & Co. Inc., The Williams Capital Group, LP, Utendahl Capital Partners, L.P., Liberty Corner Capital, and Refco Group Holdings. Refco itself is not a named party in the updated complaint.
Refco Inc. said this past week that it had received approval from the U.S. Bankruptcy Court for its sale of substantially all of the assets of Refco’s regulated commodities futures business to Man Financial Inc., a wholly owned subsidiary of Man Group plc (“Man”), for $282 million in cash and approximately $41 million of assumed liabilities and other considerations. Additionally, Bennett was charged with engaging in a conspiracy that caused Refco to sell $583 million in stock to the public based on “false and fraudulent” statements of its finances. This was stated pursuant to an indictment.
Grant Thornton, LLP, a named defendant in the case and Refco’s former auditors had insisted that the Company issue a “no reliance statement”. At this time, the Justice Department, the Securities and Exchange Commission and the Commodities Exchange Commission have commenced investigations.
The bankruptcy committee for Refco, according to Reuters, is seeking records from Grant Thornton, other institutional defendants, which include Thomas H. Lee Partners and Austrian bank Bawag PSK. Reuters also reported that these named parties are somewhat reluctant to turnover all requested information.
EXPERTS SAY PAPER TRAIL IS OFTEN ELUSIVE IN CORPORATE FRAUD
“But even with full document discovery,” says Mr. Rothstein, “highly sophisticated corporate officials accused of engineering financial fraud sometimes escape unscathed — because they plan their crimes in advance to take place with no significant paper trail.” In this case, you have varying defendants from different companies suing each other only for some to then state in public that they were all proud of each other.
As an example, on February 1, 2005, it was reported that an accountant who investigated the earnings overstatement at HealthSouth Corp. said he didn’t find a paper trail linking fired CEO Richard Scrushy to the fraud. Harvey Kelly, now with AlixPartners, worked for Pricewaterhouse-Coopers when the firm was hired to investigate the fraud at HealthSouth and redo the company’s financial statements, a contract purported to be worth $91 million.
Kelly stated to the press that he wasn’t really trying to find out who was behind the conspiracy while working with a team that sifted through HealthSouth books filled with bogus entries.
“Our job was to help the company get the right numbers and figure out how big the fraud was,” Kelly said. Kelly also said it wasn’t unusual for someone involved in a fraud to keep his name off documents linked to the crime.
ABOUT SCOTT + SCOTT, LLC
Scott + Scott, LLC has significant experience in prosecuting investor class actions. It has been lead counsel and is currently lead counsel in such high-profile and technically complicated cases as the General Motors Employee Benefits Case, Northwestern Energy, Halliburton, Sprint, Royal Dutch/Shell Petroleum ERISA Litigation, Mattel, Emulex, ImClone and many more. The firm dedicates itself to client communication and satisfaction — regardless of the size of the individual’s financial loss — and currently is litigating major securities, antitrust and employee retirement plan actions throughout the United States. The firm represents pension funds, charities, foundations, individuals and other entities worldwide. Cases currently being litigated and/or investigated by Scott + Scott, LLC include: Guidant Corp.; Boston Scientific Corp.; Taro Pharmaceuticals, Triad Hospitals, WMS Industries. HCA Inc.; Stone Energy Corp.; Packeteer Inc.; Mills Corp.; First Bancorp; and TRM Corp, among others.
IMPORTANT NOTE TO REFCO INVESTORS
Refco securities purchasers between August 11, 2005, and October 18, 2005, inclusive (the “Class Period”) are putative class members, but the firm encourages anyone who purchased these securities to contact the firm to discuss their rights. Class Periods often change as circumstances and facts dictate.
If you wish to discuss this action or have questions concerning your rights, you may contact the firm for more information. Scott + Scott will provide class members with case materials, answer all questions regarding participation and assist with other services the firm provides. There is no cost or fee to class members. Contact Scott + Scott partner Neil Rothstein (firstname.lastname@example.org, 800/332-2259, ext. 22 or cell 619/251-0887). Institutional Investors may also contact the firm at InstitutionalInvestors@scott-scott.com. During morning EST hours, you can also contact the firm at 800/404-7770 or 619/860-537-3818.