Joseph Collins, Refco Inc.’s former outside lawyer whose 2009 fraud conviction was reversed by an appeals court in January, is being retried for allegedly helping Chief Executive Officer Phillip Bennett and other executives defraud investors of $2.4 billion.
Collins, who was found guilty in July 2009 by a federal jury in Manhattan, was granted a new trial by a U.S. appeals court, which ruled that the trial judge improperly instructed a deliberating juror outside the presence of Collins’s lawyers.
The U.S. accuses Collins of helping Refco’s management conceal from lenders and investors the existence of transactions that hid losses incurred by the New York-based firm. Collins, who is free on bail, was sentenced to serve seven years in prison. He faces retrial on 10 charges, including conspiracy and bank, wire and securities fraud.
“This is a case about a corporate lawyer who helped his biggest client, Refco, create a massive fraud that cost victims more than $2 billion and put the company out of business,” Assistant U.S. Attorney Harry Chernoff told jurors today.
Jonathan Bach, a lawyer for Collins, argued his client had served as outside counsel for Refco without any knowledge of the fraud. Bach said his client didn’t have any motive to join in the scheme, which he argued was set in motion and concealed by Bennett and senior executives Robert Trosten and Santo Maggio.
All three men pleaded guilty and Trosten and Maggio agreed to cooperate against Collins. They testified against him at the earlier trial.
“Phillip Bennett is an extraordinary con man. He passed himself off as a successful businessman, but at the end of the day he was a thief,” Bach said. “You will learn that Joe Collins was not part of their fraud, he wasn’t invited when they met behind closed doors.”
Once the biggest independent U.S. futures trader, Refco collapsed in 2005 two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in U.S. history after disclosing that it had transferred more than $1 billion in losses to a firm owned by Bennett.
Collins, formerly with the Chicago firm Mayer Brown LLP, is accused of helping Refco’s management conceal transactions that hid losses incurred by the New York-based futures firm. The U.S. alleges Collins knew of the scheme and still drafted legal documents that allowed Bennett to deceive investors and helped it transfer losses to the Bennett-owned firm. Mayer Brown wasn’t accused of wrongdoing.
Jurors in the retrial were told that Maggio, the former CEO of Refco’s offshore unit and a key government witness against Collins at the earlier trial, died earlier this year. Chernoff told jurors they would instead have transcripts of Maggio’s testimony read to them. Trosten will testify again.
Alleged victims of the scheme included Boston-based Thomas H. Lee Partners, which paid $50 million for a 57 percent stake in Refco in 2004.
Collins was convicted of five counts, including two counts of wire fraud, two counts of security fraud and one count of conspiracy. Jurors were unable to reach a verdict on nine other charges.
On the fifth day of deliberations in Collins’s trial, jurors told U.S. District Judge Robert Patterson in a note that they were having difficulty reaching a verdict. Later that day, one of the jurors told a court security officer that another juror had physically threatened him.
After Patterson received more notes from jurors, including one claiming that a male juror on the panel tried to barter his vote, he met alone with that juror and encouraged the man to try to work with other members of the panel.
The appeals court held that Patterson’s meeting alone with the juror deprived Collins of his right to be present at all stages of his trial.
Bennett is serving a 16-year sentence. His ex-partner, Tone Grant, is serving 10 years following a conviction at a trial.
The case is U.S. v. Collins, 07-cr-1170, U.S. District Court, Southern District of New York (Manhattan).