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Chicago firm Mayer, Brown, Rowe & Maw is a co-defendant with bankers and underwriters in a securities class action arising from Refco Inc.’s financial collapse two months after it went public in August. The Teachers’ Retirement System of the State of Illinois, the City of Pontiac General Employees Retirement System and other institutional shareholders allege that Mayer Brown violated the Securities Exchange Act of 1934 for the role it played in falsifying Refco’s financial condition. Teachers’ Retirement System of Illinois v. Lee, No. 05-cv-10403 (S.D.N.Y.). Refco allegedly created the financial black hole at the heart of the matter when it repackaged hundreds of millions of dollars of bad accounts receivable as a “loan” to its former CEO, Phillip R. Bennett. He has since been indicted. The so-called “related party” loan was moved off and on the books as needed, according to the complaint, which was filed last month in federal district court in New York. Allegedly aware of this perilous situation, Mayer Brown purportedly conspired with Refco’s officers and other professional advisors in activities related to structuring an August bond offering to recapitalize Refco, then taking the company public the following day, the complaint says. Refco imploded when company officers not in on the alleged scheme discovered the accounting irregularities two months later. The Refco board, forced to disclose the hundreds of millions of dollars in uncollectible receivables that resulted in its share price collapse, declared bankruptcy. Mayer Brown has denied any wrongdoing and hired John K. Villa of Washington’s Williams & Connolly to represent it in the matter.

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