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May 14, 2009 11:02 AM

What Did Joseph Collins Know and When Did He Know It?

Posted by Zach Lowe

Federal prosecutors began their case against Mayer Brown partner Joseph Collins yesterday, arguing that Collins intentionally misled banks, investors and the private equity firm that purchased Refco by hiding debt and engineering sham loan transactions, according to the New York Law Journal, an Am Law Daily sibling publication. 

For white-collar defense lawyers, the implications of the Collins case are huge. Collins, who is on leave from Mayer Brown, had one major ruling go his way in March, when a federal judge dismissed shareholder claims against him (and Mayer Brown) under a broad interpretation of the protections outlined in the Supreme Court's famous Stoneridge case. In the shareholder case, the court ruled that Mayer Brown could not be held liable unless they made misstatements directly to shareholders--even if firm lawyers engaged in fraudulent conduct behind the scenes. 

But that didn't end the federal criminal case against Collins, and prosecutors came out swinging yesterday at federal court in Manhattan. Assistant U.S. attorney Christopher Garcia claimed Collins lied repeatedly to keep Refco money pouring into the firm; those bills ended up totaling $40 million, Garcia said. Among the specific allegations, Garcia argued that Collins lied to Thomas H. Lee Partners, the investment firm that scooped up Refco in 2004 and took it public the next year, by claiming Refco was carrying just $100 million in debt when the real figure was about $1 billion, the NYLJ says. 

Collins' lawyer, William Schwartz of Cooley Godward Kronish, dismissed Garcia's argument and called Collins "an honest lawyer who believed he was representing an honest, trustworthy company," the NYLJ says. (Schwartz has also been in the news lately for his representation of Hank Morris, the former top New York state official who allegedly raked in millions in illegal fees in return for steering state pension fund investments to friendly firms.) 

Schwartz argued that Collins received no proceeds from the Refco frauds and was not aware of them. Collins was a successful lawyer who didn't need the money, Schwartz said. "Why would he risk it all?"

For the full background on the Mayer Brown/Refco case, check out this story from the November 2008 issue of The American Lawyer

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