MBRM faces action over Refco debt ‘cover-up’

Mayer Brown Rowe & Maw (MBRM) has been landed with a $245m (£119.2m) lawsuit from buyout house Thomas H Lee Partners, a creditor of bankrupt derivatives trader Refco. Lee is alleging a cover-up by MBRM.

MBRM had girded itself against a potential suit ever since a bankruptcy examiner’s report earlier this month found that the firm had advised on 17 loan schemes that concealed the extent of Refco’s debt. The company filed for bankruptcy in 2005.

The firm denies the allegations. It is turning to Washington DC-based Williams & Connolly to defend its position.

In a statement the firm’s lawyer John Villar said: “We have reviewed the lawsuit filed against Mayer Brown Rowe & Maw by Thomas H Lee and find it without merit. We will defend the lawsuit vigorously, and are confident of a positive resolution of the matter.”

Lee claims MBRM knew that these transactions were a sham and that it failed to disclose them when Lee conducted due diligence prior to its 2004 acquisition. The claim states that the firm “repeatedly misled the [Thomas H Lee Partners] funds in connection with the 2004 purchase by both hiding and denying the existence of a series of virtually identical sham related-party transactions”.

Lee has instructed Weil Gotshal & Manges on the case. Ironically, Weil was also named in the original report, as it had advised Lee on the 2004 purchase. The report found that there was insufficient evidence that the firm knew the transactions were spurious. A Weil statement read that the firm believed it had “performed its due diligence responsibilities regarding Refco thoroughly, professionally and conscientiously”.

In 2004 Lee bought a majority stake in Refco, which at the time was one of the world’s largest commodities and derivatives traders. The following year an internal Refco investigation uncovered a bogus loan scheme that hid customer losses.