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June 19, 2009 12:19 PM

Joseph Collins Takes the Stand

Posted by Zach Lowe

Correction, 6/22/09 at 1:47 p.m. - As a commenter to this post noted, Refco's former CEO is Phillip Bennett, not Robert Bennett, as we originally posted in the second paragraph below.

Thursday was an eventful day for Joseph Collins, as the Mayer Brown partner took the witness stand and claimed Refco's brass lied to him, and that he had no idea the loans he was documenting were designed to hide hundreds of millions of dollars in debt from shareholders, investors, and the private equity firm that eventually agreed to buy the now-defunct company.

Collins, who is facing a long prison term and 14 different fraud-related counts, testified that Refco officials, including former CEO Phillip Bennett, simply never told him the loan transactions had a "third leg" designed to park debt in a holding company Refco controlled, according to the New York Law Journal, an Am Law Daily sibling publication. Collins also testified that he did not realize the company was hiding debt from lenders and from Thomas H. Lee Partners, the private equity fund that agreed to buy Refco in August 2004, the NYLJ says.

None of that is really surprising. What's just as interesting for our purposes are some of the details of the client-firm relationship that emerged while Collins answered questions from his attorneys at Cooley Godward Kronish. Among them: A huge percentage of Collins's billable work came from Refco. In 2002, for instance, 1,745 of his 2,609 billable hours came from Refco--but only two of those hours were linked to two loans Refco sent to hedge fund customers, which then sent the money right back into Refco's holding company. (Bennett is now serving a 16-year prison term for those offenses and others.)

Prosecutors have claimed Collins played an active role in the sham loans, and two former Refco officials have testified against him, the NYLJ says. 

Collins also testified about how much of the loan documentation work he delegated to Mayer Brown associates. "I didn't personally spend a lot of time," he testified, according to the NYLJ. "I delegated them. I didn't structure them. I didn't negotiate them. I didn't talk to customers about them. They just didn't require much of my time."

This testimony, combined with the billable hours details, is interesting because prosecutors have claimed Collins went along with the Refco scam in part because of how dependent he was on Refco as a client. 

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When I worked for Joe many years ago, he was a solid delegator then too. If a project was not within his core commodities and trading expertise, he was entirely comfortable getting someone with the right expertise to work on the project and then letting them do the work without interference. It would be very sad if that respect for his co-workers abilities is what hurt him here. It also is very sad that the attorneys who he kept busy over the last ten years are not stepping up to validate this.

It should be Phillip Bennet, not Robert Bennett

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