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In re Refco, Inc. Securities Litigation

United States District Court for the Southern District of New York
609 F.Supp.2d 304 (2009)


See also, Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown Rowe & Maw LLP, 612 F.Supp.2d 267 (S.D.N.Y. 2009). Refco, Inc. (defendant), an international provider of brokerage and clearing services, extended credit to customers so that they could make larger securities trades. When Refco failed to adequately check customers’ creditworthiness, investors began to default on the loans and Refco suffered substantial losses as a result. Instead of disclosing the losses, Refco hid them in a subsidiary entity which made loans to itself through third parties. These were referred to as “round-trip loans.” Refco’s outside counsel, Mayer Brown Rowe & Maw LLP (Mayer Brown) (defendant), participated in 17 round-trip loans by drafting legal documents, explaining transaction details to promising third-party participants, and negotiating the loans. Subsequently, the company’s uncollectible debt became publicly known. Investors lost millions of dollars. A class action group of investors (collectively, plaintiffs) filed suit in federal district court against Mayer Brown alleging violations of § 10(b) of the Securities and Exchange Act of 1934 (the Act) and associated federal securities laws. Mayer Brown moved to dismiss all claims.

Rule of Law


Holding and Reasoning (Lynch, J.)

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