Refco advisers in legal spotlight

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Former advisers to US finance firm Refco may be sued for negligence for their role in its scandal-hit collapse, a legal expert has said.

The court-appointed examiner reviewing Refco's 2005 bankruptcy said there were grounds for legal action against Grant Thornton, Ernst & Young and others.

Refco was forced into bankruptcy protection in 2005 after three of its senior bosses were accused of fraud.

Grant Thornton and Ernst & Young said they had acted professionally.

Loan claims

Grant Thornton was Refco's auditor at the time while Ernst & Young provided tax services.

They are among four firms whose actions were criticised by Joshua Hochberg, the leading criminal lawyer tasked with reviewing the background to Refco's collapse.

Refco was plunged into crisis in October 2005 after its chief executive Phillip Bennett was accused of misleading investors at the time of its flotation two months earlier by concealing a $430m loan to a subsidiary he controlled.

He and two colleagues, former chief financial officer Robert Trosten and former Refco president Tone Grant, have pleaded not guilty to fraud charges and are set to go on trial later this year.

The firm's bankruptcy was the fourth largest in US history.

In a report lodged with the US Bankruptcy Court in New York City, Mr Hochberg said he had found grounds to support shareholder lawsuits against Refco's advisers.

Grant Thornton, Ernst & Young and US law firm Mayer, Brown, Rowe and Maw have been accused of professional negligence relating to the firm's collapse while Ernst & Young and Mayer Brown are accused of assisting executives to perpetrate fraud.

Shareholders have already launched lawsuits against Refco executives and Grant Thornton while trustees for Refco's capital markets unit are considering further legal action.

'Standards upheld'

Both Grant Thornton and Ernst & Young defended their actions with regard to Refco.

"Our audit work met professional standards and statements by the examiner do not reflect the context or the facts as we know them to be," Grant Thornton said.

Ernst & Young said its work for Refco "consistently met all professional standards" while Mayer Brown said it would seek to prove it "adhered to the highest ethical standards".

Mr Bennett faces up to 20 years in jail if found guilty of securities fraud.

Refco emerged from bankruptcy protection in December after selling a host of businesses.