Retribution for Refco Creditors

Remember Refco?

It was the big commodities brokerage that massively imploded in 2005 after it became known that its C.E.O. Phillip Bennett hid $430 million worth of bad debts from the company's books. At the time, Refco was only five months into its new life as a public company, brought to market by none other than the prestigious Goldman Sachs. It filed for bankruptcy one week after the revelations.

Bankruptcies like Refco's don't go away overnight (we're still talking about Enron nearly six years after the fact, right?). The Bankrupcty Court in New York today unsealed a whopping 416-page report from the examiner that will surely make a few folks lose sleep tonight.

According to the report, Refco creditors may have many more sources from which they can seek remuneration. Naturally, the beancounters are being thrown into the fire. The examiner says the auditing firms Ernst & Young and Grant Thornton may have to pay up for their role in the company's collapse.

And what about the lawyers? Let's not forget the lawyers. The law firm of Mayer, Brown, Rowe & Maw could face claims of "professional negligence" for letting the details fall through the cracks while it helped prepare all of that loan documentation. As for Weil, Gotshal and Manges, which represented Refco during its 2004 sale to the buyout firm Thomas H. Lee & Partners, the report says it's a "close call." Stay tuned.

Bennett, meanwhile, is scheduled to go to trial in federal court in New York in October.

by Megan Barnett