Thomas H Lee Partners sues Refco legal counsel

Thomas H Lee Partners plans to seek $245 million in damages from the law firm that represented its former portfolio company, Refco, which was discovered to have committed massive balance sheet fraud in 2005.

Boston-based Thomas H Lee Partners has filed a lawsuit against international law firm Mayer, Brown, Rowe & Maw, seeking damages of at least $245 million (€180 million) in connection with 2005’s Refco scandal.

Mayer, Brown represented futures broker Refco when TH Lee agreed to acquire the company for $2.25 billion in 2004. After TH Lee took Refco public in 2005, the firm discovered that Refco’s chief executive officer Phillip Bennett owed the company $430 million in off-the-books receivables. The scandal eventually sunk the Refco, costing TH Lee $245 million, according to a lawsuit TH Lee filed against Bennett and two other Refco executives in November 2005.

Mayer, Brown was responsible for negotiating and drafting documents pertaining to TH Lee’s due diligence process and acquisition. In a statement, TH Lee alleged that “Mayer, Brown knowingly misled the Fund and knowingly allowed its clients to lie in disclosures, representations and warranties made to the Fund”.

The statement went on to claim that Mayer, Brown “endorsed its clients’ representation that no related-party transactions existed at precisely the time a Mayer, Brown lawyer involved in the diligence process was drafting the documents that effected one such sham transaction”.

TH Lee said that it plans to file a claim against Refco’s auditor, Grant Thornton, as well. The buyout firm has already been awarded at least $80 million from Austrian bank Bawag, which US prosecutors blamed for helping Bennett and others pull off an elaborate balance-sheet fraud.

TH Lee held a first close on its latest fund – its first since its founder Thomas H. Lee departed in March of 2006 – on $4 billion in May of last year. The fund has a hard cap of $9 billion.