LAWFUEL – The US Legal Newswire –
Prepared Remarks Concerning United States v. Joseph Collins
by
Michael J. Garcia
United States Attorney for the Southern District of New York
New York, New York
December 18, 2007
GOOD AFTERNOON.
TODAY WE ANNOUNCE THE INDICTMENT OF JOSEPH COLLINS, A
PARTNER WITH THE LAW FIRM MAYER BROWN, FOR HIS ROLE IN THE
FRAUD THAT RESULTED IN THE DEMISE OF REFCO, A NEW YORKBASED
FINANCIAL SERVICES FIRM THAT WAS COLLINS’S LONG-TERM
CLIENT. HE IS CHARGED WITH INTENTIONALLY FURTHERING 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 – COLLINS INSTEAD PLAYED AN ACTIVE
AND CRUCIAL PART IN PERPETRATING THE REFCO FRAUD.
TWO YEARS AGO THE COUNTRY WITNESSED ONE OF THE SWIFTEST
AND MOST SPECTACULAR COLLAPSES OF A PUBLIC COMPANY IN
RECENT MEMORY. WITHIN A WEEK OF THE DISCLOSURE OF CERTAIN
ACCOUNTING IRREGULARITIES, REFCO, WHICH WAS ONCE THOUGHT
TO BE A BILLION DOLLAR COMPANY, FILED FOR BANKRUPTCY AND
THE COMPANY’S CEO, PHILLIP BENNETT, WAS UNDER ARREST.
DURING THE PAST TWO YEARS, THIS OFFICE, ALONG WITH OUR
PARTNER AGENCIES, HAS CONTINUED TO INVESTIGATE THOSE
RESPONSIBLE FOR THE $2.4 BILLION FRAUD THAT WAS AT THE CORE
OF REFCO’S COLLAPSE, OBTAINING INDICTMENTS NOT ONLY
AGAINST BENNETT BUT ALSO AGAINST REFCO’S FORMER CHIEF
FINANCIAL OFFICER, ROBERT C. TROSTEN, AND ONE OF REFCO’S
FORMER OWNERS AND A PAST PRESIDENT OF THE COMPANY, TONE
N. GRANT.
IN THE INDICTMENT RETURNED TODAY, COLLINS – REFCO’S LONGTIME
OUTSIDE COUNSEL – IS CHARGED WITH PARTICIPATING IN THE
FRAUD AT REFCO BY COVERING UP THE COMPANY’S
DETERIORATING FINANCIAL CONDITION. COLLINS HELPED
BENNETT HIDE REFCO’S LOSSES FROM ITS AUDITORS AND THE
PUBLIC BY DRAFTING LOAN DOCUMENTS THAT TEMPORARILY
TRANSFERRED THE LOSSES OFF OF REFCO’S BOOKS DURING ITS
FISCAL YEAR END, GIVING THE FALSE IMPRESSION THAT REFCO WAS
A PROFITABLE, VIBRANT COMPANY, WHEN IN FACT IT WAS SO
STARVED FOR CASH THAT IT COULD NOT EVEN MEET ITS DAILY
OBLIGATIONS TO COVER THE TRANSACTIONS OF ITS CUSTOMERS.
COLLINS’S ROLE EXPANDED AFTER BENNETT FOUND A POTENTIAL
INVESTOR TO BUY A CONTROLLING INTEREST IN REFCO, THE
PRIVATE EQUITY FIRM THOMAS H. LEE PARTNERS. REPRESENTING
REFCO AND BENNETT’S HOLDING COMPANY IN THIS TRANSACTION,
COLLINS HELPED BENNETT COMMIT A MASSIVE FRAUD ON LEE, THE
BANKS AND PRIVATE INVESTORS WHO HELPED FUND THE $1.9
BILLION TRANSACTION.
COLLINS MISLED LEE AND OTHERS INTO BELIEVING THAT
BENNETT’S HOLDING COMPANY OWED REFCO NO MORE THAN
APPROXIMATELY $108 MILLION, AND THAT THE DEBT WOULD BE
REPAID BY THE TIME THE LEVERAGED BUYOUT, OR “LBO”
TRANSACTION CLOSED. COLLINS KNEW THAT BENNETT’S HOLDING
COMPANY ACTUALLY OWED REFCO AT LEAST $1 BILLION AND THAT,
EVEN AFTER THE LBO, BENNETT’S HOLDING COMPANY WOULD
CONTINUE TO OWE REFCO AT LEAST $300 MILLION.
ADDITIONALLY, COLLINS PLOTTED WITH BENNETT TO CONCEAL
THE FACT THAT REFCO HAD RECEIVED A CASH INFUSION OF MORE
THAN $450 MILLION FROM THE AUSTRIAN BANK BAWAG – IN PART
TO PAY DOWN $350 MILLION OF THE GIANT DEBT THAT BENNETT’S
HOLDING COMPANY OWED REFCO – AND THAT, IN RETURN, BAWAG
ACQUIRED THE RIGHT TO RECEIVE A 47% ECONOMIC INTEREST IN
REFCO – KEY INFORMATION THAT COLLINS ACTIVELY WORKED TO
CONCEAL FROM THE BUYERS.
COLLINS ALSO MISLED THOMAS H. LEE AND OTHERS INTO
BELIEVING THAT REFCO HAD APPROXIMATELY $500 MILLION IN
EXCESS WORKING CAPITAL WHEN COLLINS KNEW THAT $390
MILLION OF THAT AMOUNT WAS NOT WORKING CAPITAL, BUT WAS
A LOAN FROM BAWAG.
AND, FINALLY, COLLINS ASSISTED IN THE PREPARATION OF A STOCK
REGISTRATION STATEMENT IN CONNECTION WITH REFCO’S INITIAL
PUBLIC OFFERING THAT CONCEALED TRANSACTIONS THAT MIGHT
HAVE REVEALED REFCO’S TRUE ECONOMIC CONDITION.
COLLINS’S ROLE IN THE FRAUD WAS VITAL BECAUSE THE PEOPLE HE
LIED TO BELIEVED HIM AS A RESULT OF HIS LONG-STANDING
RELATIONSHIP WITH THE COMPANY AND HIS STATURE WITHIN THE
LEGAL COMMUNITY.
IN CLOSING, THOUGH, LET ME RE-EMPHASIZE THAT TODAY’S
CHARGES 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. NO LAWYER WILL BE PROSECUTED UNLESS THAT LAWYER
KNOWS ABOUT THE CLIENT’S FRAUD AND AGREES TO JOIN IN IT
UNDERSTANDING ITS UNLAWFUL NATURE, OR UNDERSTANDING ITS
UNLAWFUL NATURE, TAKES STEPS INTENDING TO HELP THE FRAUD
SUCCEED. THAT IS WHAT JOSEPH COLLINS IS ALLEGED TO HAVE
DONE: THAT IS WHY HE IS BEING CHARGED TODAY.
AT THIS TIME, I WOULD LIKE TO EXTEND MY THANKS TO THE
SECURITIES & EXCHANGE COMMISSION, THE UNITED STATES POSTAL
INSPECTION SERVICE, THE COMMODITY FUTURES TRADING
COMMISSION, AND THE CRIMINAL INVESTIGATORS OF THE U.S.
ATTORNEY’S OFFICE, ALL OF WHOM HAVE WORKED SO HARD TO
UNCOVER THOSE RESPONSIBLE FOR THE FRAUD AT REFCO.
THANK YOU.
