Remember when everyone was content to lay the blame for Refco’s collapse at the feet of corrupt CEO Phillip Bennett? It was like the age of semi-innocence.
Bennett will go on trial next March, but not everyone seems to believe he was a master grifter. Instead, lawsuits are being filed between various parties who believe there was ample opportunity to spot Bennett’s malfeasance and to sound the alarm.
The most recent suit (download here) is against buyout firm Thomas H. Lee Partners, which bought Refco in 2004 for $8 per share. It brought it back to the public markets one year later at $22 per share, with a first-day pop up to $27.48 share. When Refco imploded soon after, some questioned THLP’s due diligence acumen — but most believed that the firm had been duped.
“You usually trust your CEOs, which really hangs you out on a limb if he lies to you,” one buyout pro explained.
Refco’s bankruptcy trustee, however, feels differently. It argues in its complaint that “the story of THLP’s midconduct is one of greed and a failure of integrity.”
It also finds specific fault with THLP’s eponymous founder Tom Lee, who the suit alleges was warned about Bennett’s bad faith. This must be particularly aggravating to Lee, since he was thought to have only taken the Refco board seat because it looked like such a sure bet (oops). He has since left THLP in a contentious split, but is named as a defendant alongside current THLP partners and ex-Rfco board members Scott Schoen and Scott Jaeckel.
THLP has obviously characterized the suit as being “without merit,” and promises a fight. It also is promising more of its own Refco-related lawsuits, in addition to one already filed against the law firm that represented Refco on the buyout (Mayer, Brown, Rowe & Maw).
Somewhere, Phillip Bennett is chuckling. Well, at least until March.