The plaintiffs lawyers bringing the shareholder class action suit over the collapse of commodities brokerage Refco Inc. have been receiving assistance from an unlikely source -- Refco's former chief executive officer.
John P. Coffey of Bernstein Litowitz Berger & Grossman and Stuart M. Grant of Grant & Eisenhofer disclosed in a letter Thursday to Southern District of New York Judge Naomi R. Buchwald that they held "several highly productive meetings" with ex-Refco boss Philip R. Bennett, who provided them with a "unique opportunity to debrief a former CEO involved in a massive corporate fraud."
In an interview Thursday, Coffey said it could be a first.
"I can't think of another time a CEO who led a massive fraud agreed to sit down with the investors he victimized," he said.
Bennett is a defendant in the class action, but his cooperation with shareholders may have been motivated by more pressing concerns. He pleaded guilty to fraud and other criminal charges in February, and Buchwald is overseeing his June 19 sentencing, not the securities class action, which is before Judge Gerard Lynch. Bennett is facing up to 315 years in prison.
The criminal case is United States v. Bennett, 05 cr 1192. The securities class action is In re Refco Securities Lit., 05 civ 8626
In their letter, which they state was written at Bennett's request, Coffey and Grant do not ask for a lighter sentence but state their belief that the former CEO "has made a substantial effort to assist the investors hurt by the collapse of Refco."
Refco was forced to file for bankruptcy just weeks after holding a highly successful initial public offering when it was revealed that the company had concealed large losses from defaulting customers through a series of sham transactions.
Aside from Bennett and other Refco executives, shareholders are also going after: Thomas H. Lee, the private equity group that bought a controlling interest in Refco a year before the IPO; Mayer Brown, the company's regular outside counsel; auditor Grant Thornton; and a number of investment banks that provided financing.
Other Refco executives also have pleaded guilty to criminal charges, and prosecutors earlier this year indicted former Mayer Brown partner Joseph Collins, the company's former lead lawyer. The scandal also has produced a lawsuit by Thomas H. Lee against Mayer Brown, with the private equity group claiming the law firm misled it into participating.
Coffey and Grant said in their letter that Bennett was particularly helpful in delineating the interactions of these different parties.
"Suffice it to say that Mr. Bennett's assistance has materially strengthened the Class' claims against a number of defendants," they wrote.
During his meetings with the shareholders' lawyers, Bennett "expressed bewilderment that these highly paid advisors accepted at face value what they were told," said Coffey on Thursday.
Dawn M. Wilson of Wilmer Cutler Pickering Hale and Dorr, a lawyer for several of the underwriters, declined to comment Thursday. Gregory A. Danilow of Weil, Gotshal & Manges, the lawyer for Thomas H. Lee, and John K. Villas of Williams & Connolly, the lawyer for Mayer Brown, did not return calls seeking comment.
Bennett's criminal defense lawyer, David S. Frankel of Kramer Levin Naftalis & Frankel declined comment Thursday, as did Jeffrey T. Golenbock of Golenbock Eiseman Assor Bell & Peskoe, Bennett's civil lawyer.
In their letter, Coffey and Grant said they were approached by Bennett through counsel, and Coffey said Thursday the ex-CEO was accompanied by lawyers at the subsequent meetings.
Coffey said Bennett came across as eager to cooperate at the meetings, each of which was a few hours long.
Coffey said the atmosphere was cordial but not friendly.
"I represent the victims of his crime and I did not forget that," he said.
But Coffey said he would not mind a reduction, however slight, in Bennett's sentence because of his cooperation with shareholders' lawyers.
"It would be a helpful future precedent," he said.