Accounting firms Ernst & Young, PricewaterhouseCoopers and Grant Thornton were among those named in a $2 billion lawsuit filed by representatives of the creditors of bankrupt financial company Refco.
Also named in the suit were legal and financial advisors to the company, which collapsed amid allegations of “round-trip loans” made to cover up heavy losses. In addition to the accounting firms, the Refco Litigation Trusts sued Refco’s law firm, Mayer, Brown, Rowe & Maw, along with Banc of America Securities, Credit Suisse Securities, Deutsche Bank Securities, Ingram Micro, former Refco CEO Philip Bennett and other former executives.
Refco filed for bankruptcy in October 2005, two months after going public and shortly after the company revealed that it had piled up $430 million in debt. The suit accused the firms of helping Refco cover up the debt, alleging that the “fraudulent scheme only could have worked with the active assistance of Refco’s cadre of outside auditors, professionals and advisors.”
The suit charged that the scheme helped Refco executives sell off their interests before revealing the extent of the debt load. At the same time, the firms earned fees for their work in assisting with the plan. Bennett and other former Refco execs face a criminal fraud trial in October, but have pleaded not guilty.
