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Mayer Brown Partner Takes Stand to Defend His Role as Attorney for Refco
New York Law Journal
June 19, 2009
Attorney Joseph Collins said on the witness stand Thursday that he would have resigned from representing Refco Inc. had he known its top executives were engaged in sham transactions and other financial frauds.
Taking the stand in Manhattan federal court in a fight to stay out of prison and restore his reputation, the Mayer Brown partner was asked whether former Refco CEO Robert Bennett and other executives concealed from him the fact that ostensibly two-way loans had an unseen, third leg that masked a mountain of debt at the financial services company.
"Yes, they did," Collins said. "They lied to me about the purpose. They lied to me about the third leg. They never told me they were hiding it from their auditors."
It was the second day of testimony from Collins before Southern District of New York Judge Robert P. Patterson.
Assistant U.S. Attorney Christopher Garcia and his prosecution team are trying to prove Collins played a key role in a $2.4 billion corporate fraud that included sham loan transactions that defrauded banks, investors and Thomas H. Lee Partners, which bought a large stake in Refco in 2004. Refco went public in 2005 and shortly thereafter filed for bankruptcy.
Garcia had told the jury in the courtroom of Judge Leonard B. Sand -- who originally presided over the trial but was sidelined earlier this week by Lyme disease -- that Collins played a key role in helping Refco engage in "massive sham loan transactions." From 2000 through 2003, Garcia said, the transactions hid hundreds of millions of dollars in debt in another entity, RGHI, a holding company partially owned by Bennett. The prosecutor charged that Refco parked debt at RGHI during accounting reviews and later moved it back to Refco.
Garcia has also said Collins played a critical role in deceiving the Austrian bank BAWAG to provide a huge loan to the company in 2002. And that Collins helped prepare or directed the preparation of documents that were "full of lies" and presented to Thomas H. Lee Partners when the firm was preparing to buy 57 percent of Refco in August 2004.
Government witnesses at the trial who have worked to put Collins at the center of the action have included former CFO Robert C. Trosten and former Executive Vice President Santo C. Maggio.
Bennett is now serving a 16-year prison term for the fraud.
On Thursday, Collins, 59, responded with a full day of testimony under questioning from Jonathan P. Bach of Cooley Godward Kronish, who worked hard to put his client at the periphery of the illegal activities.
Collins said he prepared documents for back-to-back loans from Refco to customers, which were mainly hedge funds, which would in turn send money to RGHI. Collins said he was not aware that Refco was parking its own debt at the holding company.
Collins also prepared documents for a revolving line of credit with JPMorgan Chase that Bennett said was needed to maintain liquidity on margin transactions. Collins said he was not aware that Refco was concealing debt from the bank.
Speaking forcefully and answering questions from Bach by looking jury members straight in the eyes, Collins said he worked with the numbers the company gave him, delegated the drafting of documents to a Mayer Brown associate and barely spent time on either the back-to-back loans or, for that matter, the credit facility.
"I didn't personally spend a lot of time. I delegated them," he said. "I didn't structure them. I didn't negotiate them. I didn't talk to customers about them. They just didn't require much of my time."
To illustrate the point, Bach projected on a large screen Collins' time sheets for 2000 through 2005. For example, in 2002 he billed 2,609 hours for Refco and other clients. On Refco alone, he billed 1,745 hours and out of that, only two hours were spent on the back-to-back loans. The other years had similar numbers.
Bach then pulled out stacks of documents that were roughly the size of two New York City phone books. They were the pre-billing records sent to attorneys for their review and correction before being sent on to the accounting department for assembly of the final bill. The stack represented pre-billing records for only a month and a half.
After Collins explained the process for reviewing the records, Bach lugged the stacks to the jury box and handed them to the bemused jurors for their perusal.
When they were finished, one of the jurors got up to hand a stack back to Bach and said, "We're finished. Thank you for your generosity."
Collins and Bach then returned to their central theme -- that it was not the job of Collins to monitor the company's transactions, which would have been an impossible task.
"I do many transactions for many clients and I can't possibly keep in my mind everything" that is going on, he said. "I don't have that information. I can't compile it and I can't remember it."
Collins, who came to Mayer Brown in 1994 and headed the law firm's derivatives group, is charged with one count of conspiracy, two counts of securities fraud, two counts of making a false filing with the Securities and Exchange Commission, four counts of wire fraud and five counts of bank fraud.
He is expected to resume testifying this morning.
