TH Lee cuts Refco loss

Thomas H. Lee Partners, the Boston private equity firm that suffered a significant loss on its investment in broker Refco, has won as much as $100m in a settlement with an Austrian bank.

Bawag, the Austrian bank, will pay Thomas H. Lee Partners as much as $100 million (€521 million) in a settlement related to the collapse of broker Refco.

The Boston private equity firm announced today that Bawag will pay the firm at least $84 million over the next two years as part of a settlement with the US Department of Justice.

The payout to Thomas H. Lee Partners could reach as much as $100 million if Bawag is sold by its parent company OeGB, for more than €1.8 billion. OeGB is currently attempting to sell the bank.

US prosecutors and investors in Refco blamed Bawag for helping former Phillip Bennett and others pull off an elaborate balance-sheet fraud that eventually sank Refco. Thomas H. Lee Equity Fund V lost the $245 million in equity it invested in Refco prior to its initial public offering last year.

The settlement is part of a broader $675 million asset relinquishment agreed to between Bawag’s parent and the US government.

In a statement, Scott Schoen, co-president of Thomas H. Lee Parnters, said: “[The] agreement with BAWAG will enable us to recover a portion of the losses that we and our limited partners and co-investors suffered in the Refco fraud. We have sued Bennett and [Refco executive vice president Santo] Maggio as perpetrators of the elaborate fraud that led to Refco’s collapse, and against [Refco president Tone] Grant who profited from our investment in Refco and extended a guarantee to us in connection with the transaction. We will pursue these claims aggressively to protect our investors and ourselves, and we expect to pursue additional claims against other parties.”