The U.S. Supreme Court on Monday refused without comment to hear a class-action lawsuit filed by PIMCO and other investors against law firm Mayer Brown, adviser to former commodities broker Refco Inc.
Pacific Investment Management Co. was joint lead plaintiff in the case along with investment management firm RH Capital Associates.
Refco, a financial services company specializing in commodities, collapsed two months after an August 2005 IPO when it revealed that Phillip R. Bennett, CEO and chairman, had hidden $430 million in bad debts from auditors and investors. Later that year, PIMCO, RH Capital and other investors filed a class-action lawsuit in U.S. District Court in New York against Refco and numerous advisers involved in the IPO, arguing that they participated in securities fraud. The court found against the class action.
“Mayer Brown is very pleased that the Supreme Court let stand” that decision, the firm said in a statement.
Salvatore Graziano, a partner with the law firm Bernstein Litowitz Berger & Grossmann and attorney for the lead plaintiffs, said in an interview that while $400 million has been recovered and distributed to Refco investors, the investors felt that Refco's legal advisers should also be forced to contribute to civil damages, particularly since former Mayer Brown partner and Refco counsel Joseph P. Collins had been convicted on criminal charges in the case, along with Mr. Bennett.
On June 13, the Supreme Court rebuffed efforts by shareholders seeking class-action relief from Janus Capital Group and its subsidiaries for alleged false statements that misled the investing public into thinking that JCG and its Janus Capital Management subsidiary would implement measures to curb market timing in the Janus mutual funds. Writing for the court's 5-4 majority, Associate Justice Clarence Thomas wrote that even though JCM “was significantly involved in preparing the prospectuses” that led to inflated stock prices, “JCM itself did not ‘make' those statements.”
“The bigger issue was, you've got somebody who was criminally convicted. Why couldn't there be civil charges?” Mr. Graziano said in the interview. Mr. Graziano said that while the plaintiffs were rebuffed by U.S. district and appeals courts in New York, the appeals court “seemed to leave open some room for us. Now, that space is getting smaller,” particularly after the 5-4 ruling June 13 in the Janus case.
“It's very frustrating,” said Glen DeValerio, senior partner with securities litigation firm Berman DeValerio, which represents institutional investors, in an interview. “It's a continuing narrowing of who can be held liable for fraud.”