Refco Capital Markets, Ltd. ("RCM") is an American financial services company, primarily known as a broker of commodities and futures contracts.
According to the original Complaint, this is a securities class action lawsuit on behalf of all brokerage customers RCM who, at any time from October 17, 2000 to October 17, 2005, entrusted securities to RCM and/or Refco Securities, LLC ("Refco"), directly or indirectly, as custodian and broker for safekeeping, and continued to hold positions with RCM on October 17, 2005 (the "Class Period") or thereafter. This action arises out of a scheme to steal assets belonging to customers of RCM in order to cover up billions of dollars of fraudulently undisclosed losses incurred by Refco. The gravamen of the claim is that during the Class Period, Refco engaged in a practice of surreptitiously selling securities being held by RCM in custody for Plaintiffs and the Class with the undisclosed intent to misappropriate the proceeds. In particular, Plaintiffs allege that Defendants engaged in a ponzi scheme pursuant to which such proceeds (or the securities themselves) were transferred to other Refco affiliates - through improper and undisclosed intercompany "lending" transactions - in order to offset the losses which were being incurred by Refco's separate subsidiaries. These "loans" were fraudulently omitted from Refco Group's consolidated financial statements and other disclosures during the Class Period.
The Complaint further alleges that all customer accounts held at RCM were "introduced" to RCM under SEC Rule 15a-6 by Refco Securities LLC, the U.S. registered broker-dealer affiliate of Refco Group. Moreover, pursuant to Rule 15a-6, Refco Securities, LLC was required to maintain, consistent with SEC Rules, all of the customer securities "held" in RCM customer accounts. Refco Securities, LLC was also responsible for maintaining customer assets pursuant to SEC Rule 15c3-3 in a special account for the benefit of customers. As introducing broker, Refco Securities LLC had a fiduciary relationship with each customer and was paid fees. All customer account agreements with RCM were, by their terms, governed by New York law. These agreements also stipulated that all disputes between the parties be litigated solely in New York courts.
On July 10, 2006, the Judge Gerard E. Lynch signed the Order consolidating two actions in one consolidated action. According to the Order, the Global Management Worldwide Limited Group was appointed lead Plaintiff in this consolidated securities action. The Court approved the lead Plaintiff's selection of Kirby McInerney & Squire, LLP as lead Counsel. On September 5, 2006, the Plaintiff filed a Consolidated Amended Class Action Complaint. In January 2007, the Defendants filed several motions to dismiss.
According to a Decision of Interest dated September 20, 2007, on September 13, 2007, the court granted dismissal motions -- with leave to replead -- by various corporate officers, Refco's auditor, and a group of Defendants associated with the owners of a majority interest in Refco at the time of the alleged scheme. In so doing the court determined that the Plaintiffs failed to allege that the Defendants engaged in deceptive conduct for purposes of §10(b) of the Securities Exchange Act of 1934, and Rules 9(b) and 10b-5 thereunder. Despite various allegations of wrongdoing or mishandling of assets, Plaintiffs failed to explain how Defendants created a false impression as to their handling of Plaintiffs' assets.
On December 3, 2007, the Court issued an Amended Consolidation Order consolidating the Individual Actions with the Class Action for pre-trial purposes. On December 10, 2007, the Court entered the Stipulation and Order of Voluntary Dismissal without Prejudice of Defendant Refco Securities LLC. On December 21, 2007, a Second Amended Complaint was filed. On December 28, 2007, the case was transferred to the Multidistrict Litigation, case number 1:07-md-01902-GEL, for coordinated or consolidated pretrial proceedings. In February 2008, the Defendants filed various motions to dismiss the Second Amended Complaint.
On February 21, 2008, a Motion to Dismiss was filed by the Defendants in associated Cases: 1:06-CV-00643, 07-CV-08686, 07-CV-08688.
Soon thereafter, on February 26, 2008, a Motion to Dismiss the Second Amended Consolidated Class Action Complaint was filed by the Defendants.
On May 01, 2008, an Order by the Court approved lead Plaintiffs' selection of Milbank, Tweed, Hadley & McCloy LLP. as co-lead Counsel in this consolidated securities action.
On August 28, 2008, an Opinion and Order were entered dismissing this case denying the Plaintiff’s request to replead.
According to a press release dated September 02, 2008, the U.S. trustee overseeing bankruptcy proceedings for Refco Inc. has pushed back hard against several motions to dismiss a lawsuit alleging that outside auditors, legal Counsel and investment banks knew that a multimillion-dollar fraud was taking place that would eventually lead to the investment firm's collapse. Trustee Marc Kirschner filed the response on Friday in U.S. District Court for the Southern District of New York. In his response, Kirschner argued that the lawsuit presented enough evidence that Grant Thornton LLP, Mayer Brown LLP, and PricewaterhouseCoopers LLP — in its role as adviser and tax preparer for Refco — aided and abetted the fraud and breached their fiduciary duty that a discovery process and trial are necessary to determine the firms' liabilities. “The trustee’s allegations supporting his aiding and abetting claims far exceed this minimum pleading standard, raising strong inferences that each defendant knew about and substantially assisted the insiders’ fraud and breaches of fiduciary duties,” the response said. Kirschner also alleged that several investment banks, including Deutsche Bank AG, Credit Suisse Group and Banc of America Securities LLC, knowingly helped top executives at Refco to loot the Company. The inflated prices that the executives received for their securities from the investment banks helped Refco in its attempts to fraudulently prove to outsiders that its financial situation was stable, the response said. Other, smaller investment firms are facing allegations that they knowingly made loans that facilitated a scheme that directly led to Refco's collapse. According to the response, the Defendants claimed that Kirschner had not met the standards of evidence necessary to allow a trial to proceed.
On October 03, 2008, an order denying an interlocutory appeal was entered.
On October 15, 2008, a Transmission of Notice of Appeal and Certified Copy of Docket Sheet were sent to US Court of Appeals.
On February 28, 2011, the parties entered into a Stipulation and Agreement of Settlement. The Court granted preliminary approval of the Settlement on May 4. On August 4, the Court granted final approval of the Settlement and entered Final Judgment.
