Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown Rowe & Maw LLP

See also, In re Refco, Inc. Securities Litigation, 609 F.Supp.2d 304 (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. Thomas H. Lee Partners, L.P. (THL) (plaintiff), a private equity firm, entered into negotiations with Refco to purchase an interest in the brokerage business. Mayer Brown responded to THL’s due diligence requests by providing a number of documents and other communications, but deliberately concealed the round-trip loans. After THL acquired a controlling interest in Refco, the company’s uncollectible debt became publicly known. THL fund investors lost millions of dollars. THL filed suit in federal district court against Mayer Brown for violations of § 10(b) of the Securities and Exchange Act of 1934 (the Act) and the associated Rule 10b-5, the Racketeer Influenced and Corrupt Organizations Act (RICO), common law fraud, and common negligent misrepresentation and fraud. Mayer Brown moved to dismiss all claims.