Gibson Dunn Latest Target in Refco Fallout

Complaint by liquidators says the firm's representation was a conflict of interest
Gibson, Dunn & Crutcher is the latest law firm to be named in a suit stemming from the breakdown of the commodities firm Refco Inc. The action, filed by liquidators and the trustee for Sphinx Funds, a family of funds that collapsed after doing business with Refco, claims that Gibson Dunn's representation of various Sphinx entities was a conflict of interest that the firm never disclosed. The suit claims that representation contributed to the funds' loss of $263 million as a result of Refco's meltdown.

Andrew Longstreth

The American Lawyer

2008-04-01 12:00:00 AM

Gibson, Dunn & Crutcher is the latest law firm to be named in a suit stemming from the breakdown of the commodities firm Refco Inc. The action, filed by liquidators and the trustee for Sphinx Funds, a family of funds that collapsed after doing business with Refco, was filed March 8 in New York trial court; a notice of removal to federal district court in Manhattan was filed by one of the defendants March 28.

Refco filed for bankruptcy in October 2005. Several lawsuits and criminal proceedings have followed. This latest action claims the funds lost $263 million as a result of Refco's meltdown; Gibson Dunn's representation of various Sphinx entities also contributed to the loss, the suit claims.

Gibson Dunn represented Sphinx Funds and its investment manager, PlusFunds Inc., as well as fund directors and entities controlled by those directors.

Work for those entities was a conflict of interest that the firm never disclosed, the complaint says. The plaintiffs also charge Gibson Dunn with helping to conceal the nature of numerous loans made by Refco to Sphinx directors that were in fact payments to those directors in exchange for Sphinx's business with Refco.

The plaintiffs are represented by attorneys at Beus Gilberg and Brown Rudnick Berlack Israels. Gibson Dunn's managing partner, Kenneth Doran, could not be reached for comment.

The focus of much of Refco's litigation remains on the firm's longtime outside counsel, Mayer Brown. Plaintiffs -- including shareholders, a court-appointed trustee for the brokerage firm's creditors, and private equity firm Thomas H. Lee Partners -- have alleged that the firm helped conceal transactions that led to Refco's fall. Williams & Connolly partner John Villa, who represents Mayer Brown, declined to comment.

A criminal indictment also has singled out Mayer Brown partner Joseph Collins for helping Refco conceal the company's true financial health.

Collins, who has pleaded not guilty, is represented by William Schwartz of Cooley Godward Kronish.