Lawyer Indicted in Commodities Fraud

Enron Corp. sure had a lot of legal advice before it spiraled into fraud and bankruptcy, but none of the lawyers who advised it was indicted.

It's apparently a different story for a long-time lawyer for Refco Inc., the brokerage firm that collapsed in 2005, folding like a house of cards within a week of disclosing accounting irregularities.

Federal prosecutors in Manhattan unsealed an indictment yesterday accusing James P. Collins of Mayer Brown, with 11 counts, including conspiracy, securities fraud, wire fraud, and bank fraud.

The 55-page indictment participated in the scheme to defraud, "from at least as early as in or about 1997 through in or about October 2005." Moreover, Refco was Collins' main client: he billed more time to Refco matters that to any of his other work for Mayer Brown. From 1997 to 2005, Collins' work resulted in about $40 million in fees invoiced to Refco, according to the indictment.

Collins is charged with "acting hand-in-hand" with Phillip Bennett, Refco's former chief executive, who was arrested within a week of the initial disclosures of accounting problems in October, 2005, in making "misrepresentations, omissions and half-truths" to assist Bennett's scheme to steal more than $2.4 billion from Refco's investors and lenders. And the lies were believed "in part" because Collins was "a partner with a well-known law firm," according to the indictment.

Collins' role expanded in March 2004, when Bennett began negotiating with Thomas H. Lee Partners, the Boston private equity firm, to buy a controlling interest in Refco, misleading Lee into believing that Refco debt was no more than $108 million, when Refco actually owed at least $1 billion.

In July, Lee's firm hit Mayer Brown with a $245 million lawsuit, and in August, Refco's bankruptcy trustee filed a $2 billion lawsuit naming Mayer Brown and several accounting and investment banks as defendants.

But Michael J. Garcia, the U.S. Attorney for the Southern District of New York, apparently does not want our nation's corporate lawyers to fret too much. "In closing," Garcia said, "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." (Now, there's a relief!)

"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," Garcia added.

In other words, ignorance may be bliss for all the lawyers out there.

Meanwhile, Mayer Brown, a global firm of more than 1,500 lawyers, seems to have quickly disassociated itself from Collins, whose professional bio has been taken down from its web site.

by Karen Donovan