December 20, 2007

Fear & Loathing for Transactional Lawyers?

In a story that we will cover more after the holidays, the SEC charged an outside lawyer for a client’s fraud on Tuesday, as noted in this press release. The following NY Times article fleshes out this story:

“Federal prosecutors charged the former outside counsel for the bankrupt commodities brokerage firm Refco on Tuesday with fraud tied to the eventual collapse of the commodities and futures brokerage. Joseph P. Collins, 57, of the law firm Mayer Brown, faces 11 counts including securities fraud, wire fraud and filing false statements with federal regulators. Separately, the Securities and Exchange Commission filed a civil suit against Mr. Collins on Tuesday.

‘Mr. Collins’s role in this fraud was vital,’ Michael J. Garcia, the United States attorney for the Southern District of New York, said at a news conference. It is rare for outside counsel to be charged for fraud supposedly committed by their clients; not even Enron’s outside lawyers faced criminal charges. ‘Joe Collins is an innocent victim of the Refco fraud,’ Mr. Collins’s lawyer, William Schwartz, said in a statement. ‘This indictment should send a chill down the spine of every transactional lawyer who believes he or she is representing an honest client.’

But Mr. Garcia said that the charges did not signal a new trend of prosecuting outside lawyers. ‘The vast majority of outside counsel is law-abiding,’ he said. The announcement is the latest twist in the two-year-old fraud case, which arose in the wake of Refco’s demise. Once one of the world’s largest commodities brokerage firms, Refco went public in 2005, only to begin crumbling two months later after it disclosed that Philip R. Bennett, then its chief executive, had hidden $430 million in loans owed to the company.

Prosecutors say that Mr. Collins, who oversaw Mayer Brown’s work for Refco from the mid-1990s to 2005, supervised the structuring of transactions in which Refco temporarily shuffled debt to related companies and third parties. Those loans were reversed shortly after Refco’s quarterly periods ended.

Mr. Collins also drafted documents that misrepresented that debt to Thomas H. Lee Partners, the private equity firm that bought a stake in the company in 2004, and to the S.E.C. before Refco went public, according to the complaint. Mr. Bennett, who has pleaded not guilty to fraud charges, is scheduled to go on trial next year. Others facing criminal charges include Robert C. Trosten, Refco’s former chief financial officer, and Tone N. Grant, the firm’s former president.

Mayer Brown, based in Chicago and formerly known as Mayer, Brown, Rowe & Maw, said in a statement that Mr. Collins was on leave and that the firm was cooperating with federal authorities. It is facing lawsuits by trusts representing Refco’s creditors. ‘Our review of the evidence available to us shows that the firm acted in a professional, competent and ethical manner in its work on behalf of Refco,’ Mayer Brown said in its statement.”

Section 409A: Still Busy Despite Postponement

December is no doubt turning out much better than it might have been had the IRS not decided to postpone the deadlines for adopting Section 409A changes until the end of ’08. But even with postponement of the deadlines, there is still much that needs to be done with compensation plans now – and in the coming months – under Section 409A.

In this podcast, Mike Melbinger of Winston & Strawn discusses the postponement of the deadlines for adopting Section 409A changes until December 31, 2008, as well as the latest developments with 409A implementation, including:

– How has the IRS’s 409A delay impacted the timing of plan changes?
– What is the most helpful aspect of the postponement?
– Given the postponement of the deadline for making 409A changes, what do employers need to look out for now and into 2008?
– Are companies making other plan changes unrelated to 409A as long as they are revisiting their plans, and what types of plan changes do see the most?

Posted: Form S-3 and Simplified Reporting Adopting Releases

Yesterday, the SEC posted the adopting release for its Form S-3 reform – and the adopting release for smaller business reporting relief.

– Broc Romanek