A Mayer Brown partner was indicted Tuesday on charges he helped Refco Inc. conceal from investors that a company owned by former CEO Phillip R. Bennett owed Refco hundreds of millions of dollars.
Joseph P. Collins, head of the law firm's derivatives group, was charged in the Southern District of New York with securities fraud and a host of other counts in connection with the 2004 sale of a majority stake in the financial services company and a 2005 initial public offering.
U.S. Attorney Michael J. Garcia said at an afternoon news conference that Collins furthered the fraud at Refco "by telling lies and deceptive half-truths and omitting material information."
"He was not merely a lawyer whose client was committing fraud and who should have caught on," Garcia said. "Collins instead played an active and crucial part in perpetrating the Refco fraud."
At Collins' arraignment Tuesday afternoon, he pleaded not guilty. Judge Leonard B. Sand accepted the recommendation of Assistant U.S. Attorney Christopher Garcia and set a $1 million personal recognizance bond. He is expected to post the bond by the end of the week.
After the proceedings, Collins' attorney, William J. Schwartz of Cooley Godward Kronish, declared that "Joe Collins is an innocent victim of the Refco fraud. This indictment should send a chill down the spine of every transactional lawyer who believes he or she is representing an honest client. We intend to fight these charges to acquittal."
Schwartz had argued that Collins should be released without posting a bond. He told reporters that Collins is dedicated to clearing his name.
"The defendant is clearly here to fight and they know he is," Schwartz said.
Collins, 57, who works out of the firm's offices in New York and Chicago, was charged with two counts of securities fraud, three counts of making false filings with the Securities and Exchange Commission, three counts of wire fraud, and single counts of bank fraud, money laundering and conspiracy.
Collins, a 1975 graduate of New York University School of Law, was also sued civilly Tuesday by the SEC for aiding and abetting Refco's violations of the antifraud provisions of the federal securities laws.
His indictment comes as lawyers for Bennett, former Refco owner Tone N. Grant and former Chief Financial Officer Robert C. Trosten are preparing for a March trial on similar charges to those now being faced by Collins.
Refco first revealed on Oct. 10, 2005, that it was owed approximately $430 million by the entity controlled by Bennett. The company's stock price fell so low it was delisted by the New York Stock Exchange. The company filed for bankruptcy on Oct. 17, 2005.
According to the SEC, Collins joined what is now called Mayer Brown in 1994, bringing Refco with him as a client. Mayer Brown was Refco's primary law firm for a decade and Collins was the billing partner until the October 2005 meltdown of the stock price.
The indictment unsealed Tuesday accused him of hiding Refco's losses from the company's auditors and drafting loan documents to help disguise the losses.
Collins represented Refco in 2004 when it sold a majority stake of the company to Thomas H. Lee Partners in a leveraged buyout. Collins, it is alleged in the indictment, prepared an offering circular that failed to mention that the entity controlled by Bennett owed hundreds of millions of dollars to Refco.
He was also accused in the indictment of conspiring with Bennett to conceal from buyers that an Austrian bank had injected more than $450 million into the company and received in return a 47 percent stake. And Collins was charged for helping to prepare the company's stock registration statement for its initial public offering -- a document that failed to mention key transactions.
Collins and Mayer Brown were named in a civil suit filed by investors in the Southern District in October. The class action lawsuit came on the heels of a suit filed by Refco's bankruptcy trustee against the firm.
Garcia said Tuesday that Mayer Brown was cooperating with the investigation.
The U.S. Attorney made a point at his press conference of saying that the charges against Collins "should be no cause for concern for the vast majority of outside counsel who conduct themselves lawfully."
"It is not a crime to have a client who commits a crime," he said. "No lawyer will be prosecuted unless that lawyer knows about his client's fraud and agrees to join in it understanding its unlawful nature."
Linda Thomsen, director of the division of enforcement for the SEC, said at the press conference that it was "not often" that outside counsel become embroiled in securities fraud.
"Sadly, today is just such a day," Thomsen said.
Mayer Brown released a statement saying Collins is on leave from the firm while the charges against him are pending.
The firm also defended its own conduct in the matter.
"Our review of the evidence available to us shows that the firm acted in a professional, competent and ethical manner in its work on behalf of Refco," the statement said.
